Zero Coupon

adjective; also used as noun (zero-coupon bond)

/ˈzɪərəʊ ˈkuːpɒn/

Describing a debt instrument that pays no periodic interest (coupon) payments, instead being issued at a deep discount to its face value and redeemed at full face value on maturity; the investor's return is entirely the difference between the discounted issue price and the redemption value. The Government of India has issued zero-coupon bonds to recapitalise public sector banks (notably in 2021, when Rs. 82,900 crore was issued to recapitalise banks via non-cash, zero-coupon special government securities).

✍️ Usage in a UPSC answer

India's use of zero-coupon special government securities worth Rs. 82,900 crore in FY 2021 to recapitalise public sector banks — transferring bonds rather than cash — sparked a fiscal-transparency debate: while the bonds did not require immediate cash outflow, their eventual redemption obligations constitute contingent sovereign liabilities that affect the true debt-to-GDP ratio.

Synonyms

deep-discount bondaccrual bondstrip bonddiscount instrument

Antonyms

coupon bondinterest-bearing bondincome bondfixed-income security

🌱 Word Family

zero-coupon bond (full noun phrase), coupon bond (contrasting noun), deep-discount bond (synonym), strip bond (related term), coupon rate (related phrase)

🔡 Root

French coupon = a small piece cut off, from couper = to cut; 'zero coupon' = the coupon is cut off at zero; 'zero' from Arabic sifr via Italian zero

📜 Etymology

The word 'coupon' derives from the French couper (to cut), referring to the detachable interest certificates that bondholders historically clipped and presented for payment. A 'zero-coupon' bond, by definition, has no such clip — the entire return is embedded in the price discount. Zero-coupon instruments were popularised in the US bond markets in the early 1980s when Merrill Lynch created TIGR (Treasury Investment Growth Receipts) by stripping interest from Treasury bonds. India used zero-coupon bonds for bank recapitalisation as a creative off-budget mechanism debated for its fiscal transparency implications.

🧠 Memory Hook

ZERO COUPON = NO COUPON = NO interest cheques in the post. Instead, you buy a Rs. 100 bond for Rs. 60 today — the Rs. 40 discount IS your interest, silently accruing until maturity. Think: you pay less now and get full value later — the entire reward is buried in the discount, like a zero-calorie promise that pays off at expiry.

💰 Indian Economy 📖 Seen in: Indian Economy — Growth, Planning & De...

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