Zero Coupon Zero Principal (ZCZP): A Complete Guide for CSR Donors in India
- Dipti Iyer
- 3 hours ago
- 10 min read
What Is ZCZP?
Zero Coupon Zero Principal (ZCZP) is a fundraising instrument that a not-for-profit organisation (NPO) can issue after registering on India's Social Stock Exchange (SSE). As the name suggests, it carries no coupon (interest) and no principal repayment — the subscriber does not get their money back, and does not earn a return on it.
Legally, ZCZP is recognised as a "security" under the Securities Contracts (Regulation) Act, 1956, but economically it functions as a grant: the money raised is treated as a donation, and the person or company subscribing to it is treated as a donor, not an investor.
For a CSR donor, that distinction matters. A ZCZP is not a bond in the commercial sense — it is a grant that has been wrapped in exchange-level discipline: listing requirements, disclosure obligations, and independent verification by the stock exchange. That combination is what makes it relevant to companies funding social projects under Section 135 of the Companies Act, 2013.
Background: Where ZCZP Comes From
India's Social Stock Exchange was created as a segment of the existing stock exchanges (NSE and BSE) to give registered non-profits and social enterprises a formal, regulated channel to raise funds — separate from the informal, relationship-driven fundraising that has traditionally defined the sector.
The underlying idea was to apply some of the transparency and accountability mechanics of listed capital markets to philanthropic and CSR capital: standardised disclosure documents, defined project tenures, verified fund utilisation, and periodic reporting.
ZCZP is the SSE's flagship instrument for this purpose. It is issued for a specific project, completed within a fixed tenure mentioned in the fund-raising document (maximum tenure of 1+3 years), and the thematic area of the project has to fall within a list of activities the exchange has pre-approved as eligible. A list that is broadly aligned with Schedule VII of the Companies Act and the UN Sustainable Development Goals.
How a ZCZP Instrument Works: Key Structural Features
The mechanics of ZCZP are set by SEBI's Social Stock Exchange framework and are worth understanding before evaluating any specific issue:
Cannot be traded in the secondary market — a ZCZP is not a liquid instrument.
Issued only in demat form, and is non-transferable until the tenure expires.
Minimum issue size of INR 50 lakh, with a minimum application size of INR 1,000.
Minimum subscription threshold of 75% of the proposed funding target (50% in specific cases); if this threshold is not met, the amount raised is refunded to subscribers.
The issuing NPO must explain how project impact will still be achieved if the differential (unraised) amount is not received, and must disclose how it plans to raise the balance capital in case of under-subscription.
The listing is terminated once the project's stated objective has been achieved, or once the tenure has expired — whichever comes first.
An NPO can raise multiple ZCZPs for different projects, and private placement (rather than public issue) is permissible.
Why ZCZP Is Relevant for CSR Donors
Subscribing to a ZCZP operates like a contribution rather than an investment — which is precisely why it maps cleanly onto CSR spending. For a company allocating part of its Section 135 budget, a ZCZP changes several things about how a project is sourced, governed, and counted:
1. Pre-designed, ready-made projects
Donors can invest in tailor-made projects that are already structured and documented by the NPO and vetted by the SSE, removing the need for the company to design a project from scratch.
2. No separate impact assessment for the subscribed amount
Amounts subscribed through a ZCZP do not require the standalone CSR impact assessment that would otherwise apply to large CSR projects under Rule 8(3) of the CSR Rules, 2014 — the exchange's own disclosure and reporting framework effectively takes on that role for the subscribed amount.
3. No mapping required against Schedule VII
Because SSE's specified list of eligible thematic areas is already aligned with Schedule VII CSR thematic areas, companies are not required to separately map the project against the Schedule VII activity list (though the chosen thematic area should be in alignment with company’s CSR policy)
4. No CFO certification for the subscribed amount
Primary verification responsibility sits with the exchange rather than the company's own finance function, which removes a step that is otherwise a mandatory requirement for CSR projects
5. Eligible as CSR spend in Year 1, regardless of project outcome
The contribution becomes eligible CSR expenditure in the year it is made, even if the underlying project subsequently underperforms or does not fully achieve its objective.
6. Monitoring dispensation for ongoing projects
Multi-year projects funded through ZCZP do not require monitoring due to specific dispensation in CSR Rules
7. Unspent funds are not lost to the CSR budget
If any amount remains unspent when the listing is terminated, it is required to be transferred to Schedule VII funds by the non-profit — so it stays within the CSR ecosystem rather than reverting to the company.
8. A capped share of the CSR budget
A company can invest a maximum of 10% of its CSR liability for the relevant financial year in ZCZP instruments, so it is designed as a complement and not a replacement for the rest of the CSR programmes.
Advantages and Disadvantages of Zero Coupon Zero Principal( ZCZP) for Corporate CSR Donors
As with any instrument, the operational convenience of ZCZP comes with trade-offs that a CSR committee should weigh deliberately rather than assume away.
Advantages | Disadvantages |
No pre-grant diligence required — verification is conducted by the stock exchange itself. | No operational control over how the project is actually implemented on the ground. |
No field visits or post-grant monitoring required for projects running longer than one year. | No regulatory clarity yet on monitoring of one-year projects — as the law currently stands, the company's Board is still expected to monitor these. |
No CFO certification required — that responsibility sits primarily with the exchange. | No branding or employee-engagement opportunities of the kind a directly funded, company-led CSR project typically offers. |
A project closure report and impact report are made available at the end of the bond term. |
Pointers for CSR committees to consider
Treat ZCZP as a substitute for a portion of Schedule VII-funded spending, not as the default vehicle for all CSR grants — it is capped at 10% of CSR liability for a reason.
Prioritise multi-year projects where the thematic area is genuinely aligned with the company's CSR vision, rather than treating ZCZP as a low-effort way to close out the annual budget.
Evaluate — with tax advisory input — whether the company claims 80G deduction in its tax computation,
Where possible, partner with NPOs that are already known to the company or geographically closer to its operations, which helps in obtaining the monitoring-related documentation still expected for one-year projects.
Who Can Issue a ZCZP: NPO Eligibility Criteria
For a corporate donor, the eligibility bar set for issuing NPOs functions as a built-in pre-screening layer — worth understanding on its own terms rather than taking on faith. Only registered charitable trusts, registered societies, and Section 8 companies with a minimum of three years of operation are eligible to apply.
PAN, Darpan registration, registration under Section 12A/10(23C) and 80G are mandatory, along with disclosure of any pending notices or scrutiny cases from regulatory and statutory authorities.
The SSE can refuse registration if those pending notices or scrutiny cases are serious enough to endanger the NPO's tax registration or standing under other applicable laws.
Only NGOs already registered with the Social Stock Exchange are permitted to issue a ZCZP.
The NPO's annual spending on programmatic activities in the last financial year must exceed INR 50 lakh, and donations received in the last financial year must exceed INR 10 lakh.
The NPO's activities must fall under the SSE's specified list of eligible thematic areas.
The NPO's focus should be on serving underserved populations or regions that have historically seen lower development progress, per government priorities.
At least 67% of the NPO's activities must qualify as eligible activities under the specified list.
Corporate foundations, political and religious organisations, professional or trade associations, infrastructure and housing companies (barring affordable housing), and NGOs backed by corporates are not eligible to issue a ZCZP.
The Specified List of Eligible Project Areas
A project funded through ZCZP must fall within a defined list of thematic areas that SSE has notified as eligible — a list that is broadly aligned with Schedule VII and the SDGs. For companies already structuring their broader CSR thematic areas and annual CSR spend around Schedule VII, this alignment makes it straightforward to assess whether a given ZCZP project fits the company's existing CSR vision. The specified list includes:
Eradicating hunger, poverty, malnutrition, and inequality.
Promoting health care, including mental healthcare, sanitation, and access to safe drinking water.
Promoting education, employability, and livelihood.
Promoting gender equality and the empowerment of women and LGBTQIA+ communities.
Ensuring environmental sustainability, including climate change mitigation and adaptation, and forest and wildlife conservation.
Protection of national heritage, art, and culture.
Training to promote rural sports, nationally recognised sports, and Paralympic and Olympic sports.
Supporting incubators of social enterprises.
Supporting platforms that strengthen the broader non-profit ecosystem in fundraising and capacity building.
Promoting livelihoods for the rural and urban poor, including enhancing incomes of small and marginal farmers and non-farm sector workers.
Slum area development, affordable housing, and interventions that build sustainable, resilient cities.
Disaster management, including relief, rehabilitation, and reconstruction.
Promotion of financial inclusion.
Facilitating access to land and property assets for disadvantaged communities.
Bridging the digital divide in internet and mobile phone access, and addressing misinformation and data protection.
Any other area notified by the relevant authority.
The ZCZP Listing Process
From an NPO's perspective, listing a ZCZP follows a defined sequence — useful for a corporate donor to know, since it explains what stage of readiness a prospective NPO partner is actually at:
The NPO applies for registration on the Social Stock Exchange.
The SSE verifies documentation and raises queries where needed; the NPO registers on the NSE or BSE SSE platform.
The NPO submits draft Fund Raising Document (DFRD) to the NSE/BSE
The NPO resolves any outstanding NSE/BSE queries and makes the required changes, while preparing and submitting the draft FRD.
The SSE grants in-principle approval to the DFRD ), valid for six months.
The NPO submits the final FRD and launches the issue.
On successful fundraising, the issue closes and the ZCZP is listed on the SSE.
The NPO submits an annual report in the prescribed format each year, and submits quarterly fund-utilisation reports while the issue remains listed.
Step-by-Step: How Corporates Can Subscribe to a ZCZP
For a CSR team evaluating ZCZP as part of the year's giving, the practical workflow looks like this:
Visit the NSE or BSE website to identify NGOs planning to list on the SSE,.
Go through the draft or final FRD of shortlisted NGOs to understand the project and assess its alignment with the company's CSR vision.
Understand practical details from the shortlisted NGOs — issue size, timelines, and the level of interest from other donors.
Seek approval for the subscription from the company's CSR Committee and Board.
Agree with the NPO on any specific documentation requirements the company needs, over and above what SSE mandates.
Subscribe to the offer and open a demat account, if the company does not already have one.
Obtain annual AIRs (annual impact reports), project closure report, and the final impact report upon termination, for the company's own records.
Practical Considerations Before Allocating CSR Budget to ZCZP
ZCZP is best treated as one component of a diversified CSR portfolio rather than a wholesale replacement for directly funded, company-led projects. The reduced diligence and monitoring burden is genuinely useful for CSR teams stretched across many grants, but it also means the company is trading operational visibility for administrative convenience — a trade-off worth making consciously, project by project, rather than by default.
Before allocating budget, it is worth running the same governance questions the company would apply to any CSR grant:
Does the project's thematic area genuinely serve the company's CSR vision?
Is the NPO one the company can reasonably obtain documentation from for a one-year project?
Has the 80G position been checked with the company's tax advisors?
A CSR consulting firm can help a CSR committee build this evaluation into its existing due diligence framework, particularly where the company is weighing ZCZP allocations against its regular Schedule VII-funded programme.
In Summary
ZCZP gives CSR donors a regulated, lower-friction channel to fund vetted social projects without the full weight of independent diligence, impact assessment, and CFO certification that direct CSR grants typically require.
That convenience is real, but it comes with a genuine loss of operational control and some open regulatory questions — particularly on one-year project monitoring— that a CSR committee should weigh before scaling up its allocation.
For companies structuring their broader CSR strategy, thematic alignment, and Schedule VII compliance around a CSR consulting services partner, ZCZP is worth evaluating as one instrument within that wider framework rather than in isolation.
Written By: Dipti Iyer | CSR Lead Consultant | ThinkCap Advisors
FAQS
Does subscribing to a ZCZP count as CSR expenditure?
Yes. Funds subscribed through a ZCZP are treated as a grant, and the subscribing company is treated as a donor rather than an investor, which allows the contribution to be counted as eligible CSR expenditure — subject to the 10% of CSR liability cap for the financial year.
Is a separate CSR impact assessment required for ZCZP contributions?
No separate impact assessment is required for the subscribed amount itself, since the exchange's disclosure framework — including the project closure and impact report issued at the end of the bond term — serves that function.
How much can a company invest in ZCZP in a single financial year?
Up to 10% of the company's CSR liability for that financial year can be allocated to ZCZP instruments.
What happens if a ZCZP issue does not receive the minimum subscription?
If the issue does not reach the minimum subscription threshold — 75% of the proposed funding target, or 50% in specific cases — the amount raised is refunded to subscribers.
Does a company still need to conduct NGO due diligence before subscribing to a ZCZP?
The pre-grant verification burden is significantly lighter, since the exchange has already screened the issuing NPO against its eligibility criteria. That said, many companies still run a lighter-touch version of their standard NGO due diligence process — particularly around the specific project and thematic fit — before committing CSR funds, even where the exchange has already done the entity-level verification.
Can ZCZP replace a company's regular CSR grant-making entirely?
No. The 10% cap on CSR liability, combined with the lack of operational control and branding opportunity, means ZCZP works best as a complement to a company's broader CSR programme rather than a substitute for it.
Comments