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Gramin Vikas Foundation, a not-for-profit organisation registered on the SSE, wants to raise funds by issuing a Zero Coupon Zero Principal (ZCZP) instrument to the public. Which statement about this instrument is correct?

A Zero Coupon Zero Principal instrument gives no interest and no repayment of principal, so investors act as donors. It is issued by a non-profit organisation and listed on the SSE for transparency. It is not a debt that pays coupons or returns principal.

  1. AIt pays a fixed annual coupon of 8% to investors
  2. BIt carries no interest and no principal repayment, and investors are essentially donorsCorrect
  3. CIt is convertible into equity shares of the foundation after three years
  4. DIt must be redeemed at face value on maturity

Explanation

A ZCZP instrument is issued by a non-profit organisation, pays no interest and returns no principal. Investors are effectively donors, and the instrument is listed so that the funds raised are visible and tracked. Fixed coupons, equity conversion and redemption at face value do not apply.

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