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Portfolio > Mutual Funds > Bond Funds

Zero coupon bonds

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Zero coupon bonds defer interest until the bond matures, allowing investors to purchase a bond at a deep discount and collect a lump sum at the mature date, including the initial investment and accrued interest.

One caveat to zero coupon bonds is that, despite not collecting on the bond until the mature date, investors may have to pay taxes on the “implied income” from the accrued interest.