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G-SEC STRIPS

Government - Separate Trading of Registered
Interest and Principal Securities

Curated by isolating each cash flow from a Government security!

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Popular GSTRIPS

What are G-SEC STRIPS?

G-SEC STRIPS let investors hold and trade the individual interest and principal components of eligible Government Treasury notes and Government Bonds as separate securities. Created by isolating each of the cash flows from a Government security.

Stripping is the process of separating a standard coupon-bearing bond into its individual coupon and principal components. For example, a 10 year coupon bearing bond can be stripped into 20 coupon and one principal instruments, all of which thenceforth would become zero coupon bonds.

G-SEC STRIPS: Simplifying the concept!

C1 C2 C3 C4 ... ... Cn P

Entire Strip

C1 C2 C3 C4 ... ... Cn P

Individual Strips

Breaking full security into individual cash flows

C - Coupon P - Principal
G-SEC STRIPS are ideal for all investors right from low risk appetite investors like Retail customers , Pension and Insurance companies to high risk appetite investors like hedge fund

G-SEC STRIPS Breakups

P Cn ... ... C4 C3 C2 C1

Entire Strip

P Cn ... ... C4 C3 C2 C1

Individual Strips

Breaking full security into individual cash flows

C - Coupon P - Principal
STRIPS are ideal for all investors right from low risk appetite investors like Retail customers , Pension and Insurance companies to high risk appetite investors like hedge fund

What do we get post stripping?

Coupon Strips

Multiple Coupon G-SEC STRIPS with each coupon flow maturity having a unique ISIN.

Principal Strips

One Principal G-STRIP with principal flow of the original security having a distinct ISIN.

Revised guidelines announced by RBI on May 3, 2018

All fixed rate, transferable, SLR eligible G-sec can now be STRIPped!

With G-STRIPS, investors can now get Zero Coupon Bond G-secs across the full maturity spectrum of G-secs issued by Government of India

A single cash flow from a STRIP means no coupons in between

No re-investment risk

Pricing of G-STRIPS

Each G-STRIP to be priced as a ZCB.

Transactions take place at the yield (to 4 decimals) agreed by the buyer and the seller.

Yield quoting convention

mONEY MARKET

Bonds India
For less than 6 months

semi annual

Bonds India
For greater than 6 months

Price arrived at by discounting the single cash flow of the G-STRIP at the agreed yield. Price expressed as Discounted Value per Rs. 100 Face Value.

Let’s understand the pricing better with the help of an example.

The face value of a G-Strip Bond is Rs 1000. The bond bears a coupon rate of 9% with coupon payments being made at the end of each year. The maturity of the bond is 4 years. If the bond is redeemable at a premium of 11%. What would be the present market price of the bond?

Years Cash Flow PV Factor @ 11% PV of Cash Flow
1 to 4 90 3.102 279.22
4 1110 0.658 730.38
Total Present Value 1009.6
Years 1 to 4 4
Cash Flow 90 1110
PV Factor @ 11% 3.102 0.658
PV of Cash Flow 279.22 730.38
  1009.6

Advantages of G-STRIPS

HIGHEST SAFETY

More secured than AAA Corporate Bond

OPTIONS

Variety of tenure options available

BETTER RETURNS

Than FD and tax-adjusted AAA corporate bonds

LOW MINIMUM INVESTMENT

Lowest Minimum investment starting at Rs 1000

CASHFLOW FROM GOVERMNENT SECURITY

Created by isolating each of the cash flows

No reinvestment risk

No reinvestment
risk

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