G-sec STRIPS: The Overlooked Instrument for Goal-Dated Money
Take a 10-year G-sec paying semi-annual coupons and “strip” it. Each of its 20 coupon payments and the final principal become separately tradable zero-coupon sovereign securities. That’s STRIPS: Separate Trading of Registered Interest and Principal of Securities. If you’re funding a dated future liability, a child’s 2032 admission or a 2035 retirement tranche, they may be the cleanest instrument the Indian market offers, and almost no retail investor has heard of them.
Why STRIPS suit dated goals
A STRIP is a zero-coupon bond with sovereign credit, and the menu of maturities is as dense as G-sec coupon calendars, so you get something maturing every few months out to 30+ years. Three things follow from that.
You know the exact rupees on an exact date, with no reinvestment risk. Buy the March-2032 STRIP at, say, ₹68 per ₹100 face and the terminal value is fixed to the rupee. There are no coupons to reinvest at unknown future rates, so YTM’s big caveat doesn’t apply.
The credit is sovereign. A strip of a G-sec is a Government of India obligation, so there’s no rating to check.
And it lets you match liabilities the way institutions do. Insurers buy STRIPS to match future payouts. A household funding “₹4L a year of college from 2031 to 2034” can do the same thing with four STRIPS, which is a ladder built to the month.
The price of all this is the zero’s usual property: maximum duration. A 2040 principal STRIP swings hard with yields. That’s irrelevant if you hold to the matched date, and painful if you flinch.
How to buy them
STRIPS trade on NDS-OM like other G-secs, and any G-sec can be stripped or reconstituted through primary dealers and banks under the RBI’s framework.
For retail, the route is RBI Retail Direct’s NDS-OM Retail access. Search the securities list for entries carrying coupon or principal STRIP nomenclature and maturity dates. Quotes are clean prices per ₹100 face, and since these are zeros there’s no accrued-interest line to reconcile.
The catch is liquidity. STRIPS trade thinner than benchmark G-secs, so quotes can be sparse and spreads wide, particularly in long principal strips. Use limit orders anchored to fair value: compute the price implied by nearby G-sec yields in the YTM calculator with the coupon set to 0, and refuse to cross a silly spread. Patience usually gets rewarded within a few days. This is a buy-and-hold instrument, not a trading one.
The math worth seeing once
A 6-year STRIP at a 6.9% yield costs about 100/(1.0345)^12, or ₹66.6 per ₹100 face. So ₹6.66L today becomes ₹10L in 2032, guaranteed by the sovereign, with no further decisions to make.
Fund the same goal with a coupon bond at the same headline yield and roughly ₹2.4L of coupons arrive along the way, each needing a home at whatever rates exist then. For a dated liability, the STRIP gives you a different quality of certainty rather than a slightly better number.
Taxation, honestly
Sold before maturity, a listed STRIP follows listed-security capital gains rules, so 12.5% beyond 12 months. Held to redemption, the treatment of the accreted discount sits in technical territory, turning on whether it’s characterised as interest or capital gain, and it’s worth professional advice at size. The economics hold up under either answer for most investors, but go in knowing that rather than assuming, as with all zero-structure paper.
STRIPS against the alternatives for a dated goal
| Vehicle | Certainty at date | Credit | Effort |
|---|---|---|---|
| STRIP | Exact, to the rupee | Sovereign | One purchase, plus patience on liquidity |
| Coupon G-sec | High, minus reinvestment drift | Sovereign | Coupon management |
| Target-maturity fund | Approximate (NAV drift) | AAA basket | Zero |
| FD | Exact | Bank (DICGC caps) | Zero, with lower rates at long tenors |
FAQ
What’s the minimum investment? Retail Direct trades in ₹10,000 face multiples on NDS-OM. A ₹10,000 face long STRIP costs a few thousand rupees today, which makes long-horizon goals cheap to seed.
Can I sell early? Yes, at market price, with the thin-liquidity caveat and full duration exposure. Match the maturity to the goal and the question stops arising.
Why doesn’t everyone use these? There’s no distribution behind them. No commissions, no issuer marketing, no fund wrapper. Which is part of the appeal.
Educational content, not investment advice. Tax rules current for FY 2026-27 to the best of our knowledge, but verify with a professional before acting. See the full disclaimer.