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CS Executive · Capital Market and Securities Laws · Basics of Capital Market

Nirmala Agro Ltd. issues a debenture of face value ₹1,000 with no periodic interest, at an issue price of ₹600, redeemable at par after 5 years. Which statement is correct?

It is a zero coupon debenture. The holder receives no periodic interest, buys at ₹600 and gets ₹1,000 at maturity, so the whole ₹400 return comes from the discount. The discount does not make it convertible, and a five-year tenor places it in the capital market.

  1. AIt is a zero coupon instrument whose return arises entirely from the ₹400 discount on redemptionCorrect
  2. BIt is a convertible debenture because the issue price is below face value
  3. CIt is a preference share because there is no interest
  4. DIt is a money market instrument because it is issued at a discount

Explanation

No periodic interest and issue at a discount to par with redemption at face value define a zero coupon bond. The investor gains 1,000 − 600 = ₹400 at maturity. A discount does not make it convertible, a debt instrument is not a preference share, and a 5-year tenor is a capital market maturity, not a money market one.

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