RBI/2009-10/360, IDMD. DOD. 07 /11.01.09/2009-10,
March 25, 2010
All Market Participants
Please refer to paragraph No.101 of the Annual Policy Statement for the year 2009-10. As indicated therein, it has been decided to introduce Separate Trading of Registered Interest and Principal of Securities (STRIPS) in Government Securities as part of the efforts to develop the Government Securities market.
2. 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). STRIPS will also provide institutional investors with an additional instrument for their asset-liability management. Further, as STRIPS have zero reinvestment risk (discounted instruments with no periodic interest payment thereby obviating the need for reinvestment of intermediate cash flows arising out of the investment), they can be attractive to retail/non-institutional investors.
3. The terms and conditions governing the stripping/reconstitution of Government of India securities are set out in the RBI Notification IDMD.1762/2009-10 dated October 16, 2009.
4. Detailed guidelines outlining the process of stripping/reconstitution and other operational procedures regarding transactions in STRIPS are enclosed. These guidelines shall come into effect from April 01, 2010.
Yours faithfully,
(K.V. Rajan)
Chief General Manager
as state in the point 2 above “strips have zero reinvestment risk”, i think that though coupon is detached from the principal amount to creat ZCB and it appeares that on maturity we will be receiving par value, it does have reinvestment risk in form of fall in the value if interest rates in future fall causing higher prepayments of principal amount and eventually causing fall in the interest income. now with ZCB issued innitialy it seems no prepayment risk but due to above prepayment of principal amount and reduction in the interest income it will cause fall in the value of the INT only strips.