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Navjyoti Foundation, a registered non-profit organisation, has been registered on the Social Stock Exchange and wishes to raise funds by issuing Zero Coupon Zero Principal (ZCZP) instruments. Which description of this instrument is correct?

A Zero Coupon Zero Principal instrument is issued by a non-profit organisation to raise funds for social purposes. It carries no coupon and no repayment of principal, so donors get no financial return. It differs from bonds, convertibles or preference shares, which all provide returns.

  1. AIt is a perpetual bond paying a fixed coupon every year to donors
  2. BIt is a convertible debenture that converts to equity on listing
  3. CIt is a preference share carrying a cumulative dividend and redemption right
  4. DIt is an instrument issued by a non-profit organisation with no coupon and no principal repayment, offering donors no financial return, and is used to raise funds for social purposeCorrect

Explanation

A ZCZP instrument is issued by registered non-profit organisations; it pays no interest and returns no principal, so it works as a donation-like instrument, and it may be listed or registered on the SSE. Bonds, convertibles and preference shares all carry financial returns and so do not match.

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