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DAILY NEWS ANALYSIS

Monthly DNA

19 Dec, 2023

12 Min Read

Institute for the Unification of Private Law- UNIDROIT

GS-II : International organisation Major International Organizations

India’s Uma Sekhar was elected to governing council of the Rome-based UNIDROIT.

  • It was set up in 1926 as an auxiliary organ of the League of Nations.
  • Following the demise of the League, it was re-established in 1940 based on a multilateral agreement, the UNIDROIT Statute.
  • The UNIDROIT is an independent intergovernmental organisation.
  • It deals with various legal issues including studying needs and methods for modernizing commercial and private laws.
  • Membership of UNIDROIT is restricted to States acceding to the UNIDROIT Statute.
  • UNIDROIT’s 65 Member States are drawn from the five continents and represent a variety of different legal, economic and political systems as well as different cultural backgrounds.
  • India will be a member of the Governing Council for the period 2024-28.

The achievement becomes even more remarkable as candidates from Russia, the USA and China failed to win any positions on the governing council.

Source:

The Indira Gandhi Prize for Peace

GS-II : International Relations Awards

Activist Ali Abu Awwad and pianist Daniel Barenboim win Indira Gandhi Peace Prize.

The Prize

  • It was instituted in the memory of the former prime minister by the Indira Gandhi Memorial Trust in 1986.
  • The award is given to individuals or organisations who work towards ensuring international peace and development.
  • It consists of a monetary award of Rs 25 lakh along with a citation.

Barenboim

  • He is a distinguished classical pianist, and conductor, renowned for performing with and directing some of the leading orchestras in the world.
  • Apart from his musical achievements, he is also known for his relentless endeavour in using music to foster harmony in West Asia.

Awwad

  • Mr. Awwad is an eminent Palestinian peace activist who has been working tirelessly with the people of Palestine and Israel for a peaceful resolution of the ongoing conflict in the Middle East.
  • In 2014, Mr. Awwad co-founded a local Palestinian-Israeli initiative called Roots, promoting understanding, non-violence and transformation.

Source:

International Debt Report

GS-II : International organisation Major International Organizations

  • The report is released by World Bank recently.
  • Recent Findings – Currently, about 60% of low-income countries are at high risk of debt distress.
  • Debt-service payments, which include principal and interest, increased by 5% over the previous year for all developing countries.

The 75 countries eligible to borrow from the World Bank’s International Development Association, which supports the poorest countries in 2022.

Source:

Zero Coupon Zero Principle Bonds

GS-III : Economic Issues Capital Markets

“A Bond is a fixed income instrument that represents a loan made by an investor to a borrower.” In simpler words, bond acts as a contract between the investor and the borrower. Mostly companies and government issue bonds and investors buy those bonds as a savings and security option.

These bonds have a maturity date and when once that is attained, the issuing company needs to pay back the amount to the investor along with a part of the profit. This kind of dealing with bonds between the issuer and the investor is done by brokers.

What are Government Bonds?

A bond issued by the Government of a country at a fixed rate of interest is called Government Bonds. These kinds of bonds are considered to be low-risk investments. Examples of Government bonds include Treasury Bills, Municipal Bonds, Zero-coupon Bonds, etc.

Features of a Bond for Investor

When an Investor is buying bonds, there are a few things which may be given consideration before investing in them. Given below are such important points to remember while investing in any bond:

  • Secured & Unsecured Bonds: Unsecured Bonds, also known as debentures are mostly the bonds issued by companies with a good reputation, high credit rating and the credibility of the company. The returns on such bonds are based on the profit and the success of the company. If the company makes a profit, then the amount along with interest is returned to the investor, else there may be difficulty in regaining the invested amount as well. The secured bonds offer some kind of security to the investor. These bonds are mostly considered to be Government bonds.
  • Taxation: Looks for bonds which exempt tax. Few corporate bonds levy tax on their bonds and bonds issued by Government, municipality bonds and few other do not impose a tax on the profit earned.
  • Preference of Liquidation: In case a Company gets in loss and is in debt, the money gained by selling the assets of the company is given in a certain order of preference. This is called preference of liquidation. The regained amount is distributed in ascending order of time in which the investments were made. Starting with the oldest Investors and then to the new ones.
  • Date of Maturity: Ensure that you check the maturity period of the bond and invest in something where you can earn more with a shorter time duration
  • Coupon Rate: The rate of interest at which a bond is issued and the Company is liable to pay the Investor is called the coupon rate. Research and look for Bond options which offer high coupon rate

Different Types of Bonds

There are various types of Bonds. A few of them have been discussed below in brief.

  • Traditional Bond: A bond in which the entire principal can be withdrawn at a single time after the bond’s maturity date is over is called a Traditional Bond.
  • Callable Bond: When the issuer of the bond calls out his right to redeem the bond even before it reaches its maturity is called a Callable Bond. Through this type of bonds, the issuer can convert a high debt bond into a low debt bond.
  • Fixed-Rate Bonds: When the coupon rate remains the same through the course of the investment, it is called Fixed-rate bonds.
  • Floating Rate Bonds: When the coupon rate keeps fluctuating during the course of an investment, it is called a floating rate bond.
  • Puttable Bond: When the investor decides to sell their bond and get their money back before the maturity date, such type of bond is called a Puttable bond.
  • Mortgage Bond: The bonds which are backed up by the real estate companies and equipment are called mortgage bonds.
  • Zero-Coupon Bond: When the coupon rate is zero and the issuer is only applicable to repay the principal amount to the investor, such type of bonds are called zero-coupon bonds.
  • Serial Bond: When the issuer continues to pay back the loan amount to the investor every year in small instalments to reduce the final debt, such type of bond is called a Serial Bond.
  • Extendable Bonds: The bonds which allow the Investor to extend the maturity period of the bond are called Extendable Bonds.
  • Climate Bonds: Climate Bonds are issued by any government to raise funds when the country concerned faces any adverse changes in climatic conditions.
  • War Bonds: War Bonds are issued by any government to raise funds in cases of war.
  • Inflation-Linked Bonds: Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation linked bonds is generally lower than fixed rate bonds

Unnati ZCZP Bonds

Social stock exchange sees 1st listing with Unnati Foundation 1st entity in December 2023.

What are Social Stock Exchanges (SSE)?

  • A separate segment of the existing Stock Exchange that can help social enterprise’s to raise funds from public through the stock exchange mechanism.
  • It will act as a medium between Social Enterprises and fund providers.
  • SEBI had permitted social enterprises registered on these exchanges to raise funds through zero coupon zero principal bonds (ZCZP) in 2022.

What is a ZCZP instruments?

  • ZCZP – Zero Coupon Zero Principle are financial instrument that are included in the list of securities under Securities Contracts (Regulation) Act, 1956.
  • They do not give any interest, and investors will not get any money back on the maturity of the bond.

Debt Security (Bond)

ZCZP instrument

It is like a loan.

It is not a loan but a donation.

It makes interest payments and the principal when the bond matures.

It doesn’t makes interest payments and the principal on maturity.

  • Eligibility criteria for issuanceOnly by NPO that are registered with Social Stock Exchange (SSE).
  • ZCZP can only be issued for a specific project with specific tenure.
  • The project must fall under the list of eligible activities under SEBI (ICDR) Regulations, 2018.
  • Issuance - They are issued through private placement or public issuance.
    • Minimum issue size – Rs. 50 Lakh (originally Rs.1 crore)
    • Minimum application size – Rs.10, 000 (originally Rs.2 lakh)
    • Minimum subscription required - 75% of the funds proposed
  • Trade – They shall be issued in dematerialized form only.
  • They are not available for trading in the secondary market, but they can be transferred to legal heirs.
  • Maturity – It will mature when the project for which they are raised terminate, or 12 months from the date of allotment.

What is Unnati ZCZP Bonds?

  • Issuer – SGBS Unnati Foundation, an NPO formed in November 2011.
    • Unnati – Vocational training program for underprivileged and unemployed youth in the age group of 18 to 25 years.
    • UNXT – 1 month training programme for final year students at government colleges.
    • Sugam – A grassroot entrepreneurship accelerator helping non-urban youth to develop scalable businesses.
  • Need of funds –To train up to 10,000 graduating youth from government colleges in Uttar Pradesh, Madhya Pradesh, Karnataka, Andhra Pradesh and Tamil Nadu to help them secure employment.
    • The youth will be trained for 165 hours (classroom learning and self-learning content on a mobile application).
    • Cost per head for training would be ?2,000 per youth.
  • Specifics – It is a public issue with face value of ?1 each of ?2 crore that will be listed on the NSE.

Unnati ZCZP bond is the 1st such listing on SSE segment in India.

  • This listing will be displayed along with other such future bond issuances on the social stock exchange page on the NSE website.
  • It raised Rs 1.8 crore from 4 investors and include brokerage firm Zerodha and National Bank for Agriculture and Rural Development (NABARD).

What are the benefits of these ZCZP instruments?

  • There are obviously no pecuniary benefits from these instruments as it is akin to a donation made to a charity.
  • Greater transparency - The end use of the funds can also be monitored since the enterprises have to disclose details of money utilised and balance amount remaining to exchanges.
  • Visibility to the social enterprises - It helps them to approach the public at regular intervals if they can show good outcomes.

Quick Facts

  • Social enterprises – Enterprise that are engaging in the activity of creating positive social impact and that meets primacy of their social intent.
    • Not-for-profit organization
    • For profit social enterprise

Source:

PensionFund Regulatory and Development Authority PFRDA

GS-II : Governance Governance

  • The Pension Fund Regulatory and Development Authority (PFRDA) is a regulatory body that oversees and regulates pensions in India.
  • It was established in 2003 and operates under the Ministry of Finance.
  • In 2003, the PFRDA launched the National Pension Scheme (NPS), which was extended to all citizens in 2009.

The PFRDA regulates the NPS ecosystem, which is subscribed to by employees of the Government of India, State Governments, and private institutions.

Source:

Kanduri Urs Festival

GS-I : Art and Culture Festivals

  • The annual ‘Kanduri Urs’ festival starts with the flag-hoisting ceremony in Nagapattinam district of Tamil Nadu recently.

The 14-day festival commemorates the death anniversary of saint Abdul Qadir and attracts followers from different faiths across the world.

Source:

Chandrayaan 4

GS-III : S&T Space

  • Chandrayaan-4 is a lunar sample-return mission planned by the Indian Space Research Organisation (ISRO).
  • It will be the 4th mission in the Chandrayaan program.

The mission is expected to launch in 4 years.

Source:

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