Deep Discount Bonds Definition | IDBI Deep Discount Bond | Zero Coupon Bond

Spread the love

A deep discount bonds definition will always refer to these types of bonds as having a significant amount or level of discount on its par value. The term deep discount simply means that this bond comes with a coupon rate that is lower than the existing rates. The deep discount bonds definition states that this type of bond has a market price that is at least 20% on its face value; it can also be lower than this. The deep discount bonds definition also highlights the fact that these bonds have a very high risk level; this explains why they are given such low prices. Any deep discount bonds definition will characterize this bond as a long term one having a call provision. Such bonds have very high return. The deep discount bonds definition will also refer to this bond as a zero-coupon bond; this means that there is no interest payments, which are known as coupons, at regular intervals. According to the deep discount bonds definition, the investors not only receive the interest, but the principal/ face value when the bond matures.

The idbi deep discount bond was introduced in March 1992. These bonds are issued as promissory notes. To buy an idbi deep discount bond, sellers and buyers are expected to fill up the respective documents, where the buyer will have to provide a valid address along with contact details. An idbi deep discount bond can be notarized, in the event that it is notarized, it should be signed by an attorney. You will also have to mention the folio number of your existing idbi deep discount bond, if you want to register for new bonds in the same category. The idbi deep discount bond is transferable, both transferor and transferee must sign the bond, they may also opt to have it notarized. Transmission of idbi deep discount bond can be transmitted after the death of the registered holder, in case of joint ownership, only the deceased individual’s name will be removed.

The term zero coupon bond is another name for deep discount bonds, these bonds are bought at price that is significantly lower than the face value. This bond is known as a zero coupon bond because it has no interest that is payable to the bond holder. A zero coupon bond will only give you the principal or face value as and when it matures. The real payout of a zero coupon bond towards the bond holder is the difference between what he initially pays to acquire the bond and what is due to him when the zero coupon bond matures. A zero coupon bond can either be for a long or short term; long term bonds usually last for ten to fifteen years and can be sold in secondary bond markets upon maturity. The short term bonds will a shorter time span, usually up to a year and are also referred to as bills. In India, it is mandatory to show he interest on an accrual basis, while in the US, a zero coupon bond will have what is known as an OIC (Original Issue Discount) to satisfy tax laws.