- Life Insurance Corporation of India plans to buy zero-coupon sovereign bonds for the first time
- LIC held recent discussions with banks about buying STRIPS bonds, sources say
- STRIPS bonds separate principal and interest, offering long-term higher payouts
India's largest insurer is preparing to buy zero-coupon sovereign bonds for the first time, according to people familiar with the matter, in the latest sign that the country's financialization is pushing asset managers into new products to boost returns.
State-owned Life Insurance Corporation of India held discussions with large banks this year on buying zero-coupon securities known locally as STRIPS bonds, which are created by separating the principal and interest components of government debt, the people said, asking not to be identified because the talks are private. The talks were held in the past few weeks, the people said.
The talks underscore broader structural changes in India's financial markets as competition with equity markets is driving insurers to design products that deliver higher payouts over longer time horizons. Securities that are stripped this way, however, are highly illiquid, implying sharp swings in prices that could affect investment books.
Trading in sovereign zero-coupon bonds surged more than sixfold over the past five years, driven mainly by demand from insurers and pension funds. The securities are sold at a discount and pay out at maturity, helping investors reduce reinvestment risk.
LIC, which managed assets of about $603 billion as of September 1, 2025, did not immediately reply to a Bloomberg email seeking comments.
LIC has until now avoided the instruments because of the additional costs involved, the people said. Purchasing STRIPS bonds requires intermediaries such as primary dealers to strip conventional government securities into zero-coupon components.
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