Deep-Discount Bonds - Aspero (2024)

FAQs

Deep-Discount Bonds - Aspero? ›

A deep-discount bond is a subdivision of such bonds sold lower than the face value or par value. In simple words, a deep-discount bond states that the bond issuer promises to pay the bondholder more than the original amount on the maturity date.

A deep-discount bond is a bond that sells at a significantly lesser value than its par value. In particular, these bonds sell at a discount of 20% or more to par and has a yield that is significantly higher than the prevailing rates of fixed-income securities with a similar profiles.

Bondholder may note to forward their Redemption Application Form alongwith duly discharged original bond certificate by registered post or hand delivery of the Registar viz. Link Intime India Private Limited (Formerly Intime Spectrum Registry Limited) Unit: SIDBI - Deep Discount Bonds C-101, 247 Park, L.B.S.

Since zero coupon bonds do not pay any periodic interest payments, investors are not required to pay any taxes on the interest income. However, deep discount bonds may have a coupon rate and investors are required to pay taxes on the interest income.

Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond "matures" or comes due.

Discount bonds come with a high probability of appreciating in value as long as the bond issuer does not default. If the investors hold their bonds until maturity, they will be paid an amount equal to the par value of the bond, even though they initially paid an amount that is less than the bond's par value.

As per the provisions of section 2(14) of the IT Act, zero coupon bonds also known as deep discount bonds are covered under the definition of capital assets. Thus, transfer of the same before or at the time of maturity would be taxed under the head Capital Gains.

The price of deep discount bonds can be calculated as below if the face value, discount rate and maturity period are known: P = F/ (1+r)^n P = Price, F = Face value, r= discount rate, n = Number of years till maturity.

If you have paper savings bonds, you can fill out the appropriate form and mail it and the bonds you want to cash to the Treasury Retail Securities Services — the address is listed on FS Form 1522. Additionally, you may be able to cash your paper savings bonds at your bank or credit union.

This discount will be removed over the life of the bond by amortizing (which simply means dividing) it over the life of the bond. The discount will increase bond interest expense when we record the semiannual interest payment.

What are the risks of deep discount bonds? ›

Certain risks must be evaluated and considered before investing in a deep-discount bond. These risks include Credit Risk, Reinvestment Risk, Interest Rate Risk, Liquidity Risk, Inflation Risk, etc. With such bonds, investors can lock in an increased rate of return for a sustainable amount of time.

A zero-coupon bond is a essentially a pure discount loan. It makes no payments until maturity. Instead, it sells at a deep discount from its face value.

After 20 years, the issuer of the bond pays you $10,000. For this reason, zero coupon bonds are often purchased to meet a future expense such as college costs or an anticipated expenditure in retirement. Federal agencies, municipalities, financial institutions and corporations issue zero coupon bonds.

Zero Coupon Bond – A debt security that does not pay interest, but trades at deep discount, offering full face value (par) income at maturity.

A zero-coupon bond is a debt security instrument that does not pay interest. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity.

Perpetual bonds, also known as perps or consol bonds, are bonds with no maturity date. Although perpetual bonds are not redeemable, they pay a steady stream of interest in forever.

'Deeply Discounted Securities' (DDS) are government securities, commercial bonds and loan stock, where the amount paid on redemption is higher than the price at which they were issued.

One exception is zero-coupon bonds, which do not pay interest but are sold at a deep discount and then redeemed for full face value at maturity.