Question
RBI allows STRIPS trading of Government bonds and
certain state government bonds. What does STRIPS stand for?Solution
STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. These are securities created by converting a bond’s periodic coupon payments and the principal into individual l zero-coupon instruments. Each of these can be traded separately, allowing investors to buy specific cash flows instead of the entire bond. For example, a 10-year SDL offering annual interest of Rs 70 and repaying Rs 1,000 in principal at maturity could be split into eleven separate securities - ten interest payments and one principal payment.
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Relevant for Exams:
