SEBI has invited public comments on a significant proposal that may reshape how debt securities and non-convertible redeemable preference shares (NCRPS) are issued. In a draft circular released on August 1, 2025, SEBI has proposed a modification to its earlier circular (dated July 3, 2024) that allowed issuance of such instruments at a reduced face value of ₹10,000—albeit only if they carried interest or dividend.
Now, SEBI is considering removing that interest/dividend-bearing condition, thereby enabling the issuance of zero-coupon or zero-dividend instruments at the same reduced denomination. This move is aimed at broadening market access for issuers and investors, especially in a landscape where zero-coupon instruments are gaining popularity for their simplicity and flexibility.
Why the Change?
The July 2024 circular was a welcome reform, allowing issuers to list securities with lower face value, which in turn helped improve market accessibility for smaller investors. However, by mandating that these instruments must be interest/dividend-bearing, it inadvertently excluded a significant segment of zero-coupon or zero-dividend securities.
Feedback from market participants highlighted this gap. Zero-coupon bonds, often used in structured finance or by start-ups with longer-term growth plans, offer a useful alternative for capital raising. They provide a lump sum return at maturity, rather than regular interest payouts—simplifying cash flow management for both issuer and investor.
Key Proposals in the Draft Circular
Inclusion of Zero-Coupon/Zero-Dividend Instruments: SEBI proposes allowing such instruments to be issued at the reduced face value of ₹10,000, bringing them at par with their interest-bearing counterparts.
Application Scope: The revised guidelines will apply to all private placement issues of debt securities and NCRPS intended for listing post-issuance of this circular.
Amendments to Existing Regulations: Chapter V of the NCS (Non-Convertible Securities) Master Circular will be modified accordingly.
Operational Directives: Stock exchanges, depositories, and clearing corporations are instructed to implement necessary system changes and inform market participants.
How to Participate in the Public Consultation
SEBI encourages stakeholders—whether individuals, organizations, or industry experts—to review the proposed circular and submit their views via a web-based form. Comments must be submitted by August 21, 2025.SEBI has outlined a detailed submission process, including a dropdown menu to select specific proposals, mandatory fields, and a system for downloading and reviewing responses prior to final submission.
Why Your Feedback Matters
This draft circular addresses a structural change that could encourage more flexible and inclusive financial instruments in the capital markets. Stakeholder feedback is crucial to ensuring the final guidelines are practical, effective, and balanced in safeguarding investor interests while promoting innovation.
If adopted, this amendment will not only increase options for issuers but also diversify investment opportunities for retail and institutional investors alike—especially in a rising interest rate environment where zero-coupon instruments may offer tactical advantages.