

A zero-coupon bond is a debt instrument issued at a discount to its face value and redeemed at maturity, with no periodic interest payments made during the holding period.

Investors earn returns through the difference between the discounted purchase price and the face value received at maturity. Since there are no interim payments, returns are realised only at maturity.
These bonds are useful for long-term financial planning and liability matching. They eliminate reinvestment risk but are sensitive to interest rate changes and inflation expectations.
In India, zero-coupon bonds are used for long-term treasury planning and structured investments. Understanding yield and maturity impact is essential for effective portfolio decisions.