STRIPS in Government Securities will ensure availability of sovereign zero coupon bonds, which will lead to the development of a market determined zero coupon yield curve (ZCYC). It will also provide institutional investors with an additional instrument for their asset-liability management.
Further, as a zero reinvestment risk, STRIPS can be attractive to both retail and non-institutional investors. For one, it is a discounted instrument with no periodic interest payment. As such, it obviates the need for reinvestment of intermediate cash flows arising out of the investment.
Prior to issuing the finalised detailed guidelines RBI on Thursday placed on its website “draft guidelines on stripping/ reconstitution of Government Securities” seeking comments and views from all interested parties on or before May 29, 2009.
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