Use for duration matching, not for tactical gains

Starting from June 12, 2025, the Reserve Bank of India (RBI) has permitted the use of the separate trading of registered interest and principal of securities (STRIPS) mechanism for State Development Loans (SDLs).

- SANJEEV SINHA

It was earlier allowed in central government securities.

"This will enhance price discovery, deepen liquidity, and pave the way for a transparent zero-coupon yield curve in state debt," says Vishal Goenka, co-founder, IndiaBonds.com.

Understanding STRIPS

STRIPS split a bond's periodic interest payments and principal repayment into individual zero-coupon instruments.

"These zero-coupon government securities do not pay periodic interest, but are sold at a deep discount and redeemed at face value on maturity," says Rajkumar Singhal, chief executive officer (CEO), Quest Investment Advisors.