ZERO COUPON ZERO PRINCIPAL INSTRUMENT

Definition

Rule 2(1)(l) of the Companies (Corporate Social Responsibility Rules, 2014 (‘CSR Rules’ for reference) defines the expression ‘Zero Coupon Zero Principal Instrument’ as an instrument declared as a security that is issued by a Not-for-Profit Organization registered with the Social Stock Exchange (‘SSE’ for short) segment of a recognised Stock Exchange in accordance with the regulations made by the Securities and Exchange Board of India.

Not-for-Profit Organization

Rule 2(1) (ha) defines the expression ‘Not-for-Profit-Organization’ (‘NPO’ for short) as having the same meaning as in clause (e) of regulation 292A of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018. Regulation 292A(e) of SEBI (ICDR) Regulations defines the expression ‘Not-for-Profit-Organization’ as a Social Enterprise which is any of the following entities:

• a charitable trust registered under the Indian Trusts Act, 1882;
• a charitable trust registered under the public trust statute of the relevant State;
• a Trust registered under the Registration Act, 1908 with the relevant Sub-Registrar in those States that have not enacted the law governing public trust;
• a charitable society registered under the Societies Registration Act, 1860
• a charitable society registered under the Societies Registration Act of the relevant State;
• a company registered under section 8 of the Companies Act, 2013 (18 of 2013) including a company registered under section 25 of the repealed Companies Act, 1956;
• any other entity as may be specified by the Board.

Nearly 176 NPOs were registered with SSE.

Rule 4A

A new Rule 4A was inserted in the CSR Rules, vide Notification No. GSR 415(E), dated 27.05.2026. The newly inserted Rule 4A provides that a company may carry out Corporate Social Responsibility activities through a zero coupon zero principal instrument (‘ZCZP’ for short). In this instrument no interest is payable to the holder of the instrument or the principal amount will not be refunded to the investor. The company that has subscribed in a zero coupon zero principal instrument shall be exempted from undertaking impact assessment of any project funded by such an instrument.

 The Not for Profit Organisation issuing the zero coupon zero principal instrument and raising fund therefrom shall undertake a project with a duration not more than three succeeding financial years from the issue of such zero coupon zero principal instrument; and on termination of listing of such zero coupon zero principal instrument, transfer the unspent amount to any fund included in Schedule VII to the Act and submit its compliance report to the Securities Exchange Board of India.

Amendment to Schedule VII

Vide Notification No. GSR 416(E), dated 27.05.2026, the subscription to zero coupon zero principal instruments on SSE as 13^th item in the Schedule VII of the Companies Act, 2013.

Features

• The purpose of ZCZP bond is ZCZP is Funding eligible social activities/projects.
• It is not a conventional bond. A normal bond generally promises interest and repayment of principal.
• ZCZP is structured specifically for social-impact funding.

• An eligible NPO registered on SSE.
• ZCZP instruments can be listed on the SSE.

Procedure

The NPO should satisfy the applicable SSE requirements, including its legal form and social-purpose requirements. The organisation must have the required tax registrations and supporting records. Once registered the NPO is not rushed to raise funds immediately. As of now the NPOs are allowed for three years idle without raising funds.

The NPO should identify a specific social project/object for which funds are required. The project should clearly establish:

Objective → Target beneficiaries → Activities → Cost → Time period → Expected social outcomes

This becomes particularly important because the SSE must examine whether the proposed social objectives can actually be achieved with the funds being raised.

The NPO, then, shall prepare the Fund-Raising Document. This is considered as one of the most important documents in the entire process. It should explain-

• Details of the organisation;
• Social impact such as-

• problem being addressed;
• target population;
• geographical area;
• proposed intervention;
• expected beneficiaries;
• measurable outcomes.

• The details of the proposed issue such as-

• amount proposed to be raised;
• issue price;
• number of ZCZP instruments;
• minimum application;
• purpose of funds;
• project implementation period;
• utilisation schedule;
• risks;
• previous fundraising;
• utilisation of previous funds.

The NPO submits its documents and proposed fundraising structure to the SSE. The SSE will examine the eligibility, project, disclosures, social impact, proposed utilisation, governance, financial information, fundraising document and compliance with the SSE framework. The issue can be proceeded only after the approval of the SSE on the project.

 These instruments are issued in dematerialised form. The SSE electronic book mechanism provides for bidding and allotment through the exchange's electronic platform. BSE, for example, has implemented ZCZP bidding through its Internet-based Book Building System. The applicable platform can accept bids from specified investor categories, including QIBs and eligible non-QIB investors under the SSE-EBP framework.

For a public ZCZP issue, the NSE SSE Guidebook states the issue period. Minimum period – 3 days; maximum – 10 days. Listing is targeted within the prescribed period after closure, subject to submission of the required documents.

After closure of the subscription the following steps are taken-

• reconciliation;
• allotment;
• dematerialisation;
• listing on the SSE.

These instruments are not transferable as a normal listed tradable security like an equity share.

Minimum subscription

The minimum subscription is 75% of the funds proposed to be raised. It can be 50% where:

1. the funds raised can be deployed meaningfully in accordance with the disclosed objects;
2. the project remains viable and meaningful with the lower amount; and
3. the SSE conducts due diligence before granting in-principal approval for such partial fundraising.

Issue parameters

The important parameters include:

• Minimum face value: ₹1
• Minimum issue price: ₹1
• Minimum issue size: ₹50 lakh
• Minimum application: ₹1,000
• Form: Dematerialised
• Transferability: Not transferable.

Utilisation of funds

The NPO must use the money for the objects disclosed in the Fund Raising Document. The organisation cannot simply divert the money to an unrelated activity.

Records

The NPO must maintain proper books of account, project-wise records, bank records. utilisation records, invoices/vouchers, beneficiary records and impact documentation.

Termination

The NSE Guidebook explains that termination can occur when:

• the social objectives/outcomes stated in the FRD have been achieved and the required certificate is submitted to the SSE; or
• the tenure specified for achieving the objectives expires.

Post listing compliances

The following compliances are to be done after listing of these bonds-

• Annual disclosure;
• Annual Impact Report;
• Quarterly utilisation statement;
• Materiality policy;
• Material events.