Investment in Separate Trading of Registered Interest and Principal of Securities (STRIPS)
Dear Investor, STRIPS (Separate Trading of Registered Interest and Principal of Securities) are instruments in which a fixed-coupon government bond is broken down ("stripped") into its separate cash flows: each coupon payment and the principal repayment become individual zero‐coupon securities. For example, a government bond pays coupons every six months from the issue date, along with the principal at maturity. After the bond is stripped, each coupon is turned into a separate tradable instrument called a “Coupon STRIP,” while the principal is converted into another instrument known as the “Principal STRIP.” The STRIPS carry only one cash flow (usually at maturity), they behave like zero‐coupon bonds: you buy them at a discount, and you receive the face value at maturity. Features of Strips Zero Coupon Bond: Each individual principal or interest payment is treated as a distinct zero-coupon bond. Strips are issued at a discount to their face value and redeemed at face value o...