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What is STRIPS? What is the benefit of stripping Government securities?

April 26, 2017benefit government securities stripping strips

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What is STRIPS? What is the benefit of stripping Government securities?

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STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities and are basically “zero-coupon” securities where the investor receives a payment at maturity only. STRIPS allows investors to hold and trade the individual interest and principal components of eligible Government securities as separate securities of varying tenors. They are popular with investors who want to receive a known payment on a specific future date and want to hold securities of desired maturity.