Zero-coupon bonds, also known as discount bonds or deep discount bonds, are fixed-income securities that do not pay periodic interest (coupon) payments. Instead, they are issued at a discount to their face value and provide a return to investors through capital appreciation.

Unlike traditional bonds, zero-coupon bonds do not make regular interest payments. Instead, they are sold at a discount to their face value, which reflects the difference between the purchase price and the eventual payout at maturity. The investor receives the full face value of the bond when it reaches maturity.

The primary advantage of zero-coupon bonds is their ability to provide investors with a known future value, as the discount and maturity value are predetermined. This characteristic makes them appealing for long-term financial planning or specific investment goals.

Investors should note that although zero-coupon bonds do not provide regular income, they still have tax implications. Even though the interest is not received until maturity, it is generally subject to taxation as it accrues annually.

Zero-coupon bonds are commonly used by investors seeking to meet future financial obligations or to take advantage of potential capital gains opportunities. They are also favored by investors who wish to lock in a fixed return over a specific investment horizon.