What it is
Zero-coupon bonds are debt securities that don’t offer regular interest payments. Instead, they are sold at a lower price than their face value. Then, investors are paid the full face value upon maturity.
This payment setup sets “zeros” apart from other types of bonds that pay investors interest periodically via coupons until the bond matures.
Bonds are issued by corporations and government entities as a way to borrow money from institutions and individual investors.
What it means for you
By buying a zero-coupon bond, investors may turn a profit by getting a lump sum payment upon maturity instead of earning interest periodically.
The investor’s return is the difference between the discounted purchase price and the face value at maturity. This type of bond is an option if you’re investing for a long-term goal and don’t mind earning a fixed amount on a set date.
However, for Filipino investors, zero-coupon bonds may not be as readily available locally and might only be accessible by tapping into international bond markets.
