Zero-coupon bond

In contrast, an investor who has a regular bond receives income from coupon payments, which are made semi-annually or annually.

Long-term zero coupon maturity dates typically start at ten to fifteen years.

An alternative form is to use a custodian bank or trust company to hold the underlying security and a transfer agent/registrar to track ownership in the strip bonds and to administer the program.

Physically created strip bonds (where the coupons are physically clipped and then traded separately) were created in the early days of stripping in Canada and the U.S., but have virtually disappeared due to the high costs and risks associated with them.

Pension funds and insurance companies like to own long maturity zero coupon bonds because of their high duration.

In the United States, a zero-l coupon bond has original issue discount (OID) for tax purposes.

[4] Therefore, zero coupon bonds subject to US taxation should generally be held in tax-deferred retirement accounts, to avoid taxes being paid on future income.

The use of such instruments was aided by an anomaly in the US tax system, which allowed for deduction of the discount on bonds relative to their par value.

[citation needed] In India, the tax on income from deep discount bonds can arise in two ways: interest or capital gains.