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In the run up to setting up a social stock exchange, the government has declared "zero coupon zero principal instruments" as securities. Zero coupon zero principal instrument means an instrument issued by a Not for Profit Organisation (NPO) which will be registered with the social stock exchange segment of a recognised stock exchange. These instruments will be governed by rules made by the Securities and Exchange Board of India (Sebi), according to an official notification issued on Friday.

The Social Stock Exchange (SSE) is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them. The idea was floated by Finance Minister Nirmala Sitharaman in her Budget Speech 2019-20. SSE will be a separate segment of the existing stock exchanges. As per the notification, the central government has declared "zero coupon zero principal instruments" as securities for the purposes of the Securities Contracts (Regulation) Act, 1956. In September 2021, Sebi's board cleared a framework for SSE for fund raising by social enterprises. The framework for SSE has been developed on the basis of the recommendations of a working group and technical group constituted by the regulator. Social enterprises eligible to participate in the SSE should be entities -- NPOs and for-profit social enterprises -- having social intent and impact as their primary goal. Also, such an intent should be demonstrated through its focus on eligible social objectives for the under served or less privileged populations or regions.

The social enterprises will have to engage in a social activity out of the list of 15 broad activities approved by Sebi. With regard to fund raising, it has been proposed that eligible NPOs may raise funds through equity, zero coupon zero principal bonds, mutual funds, social impact funds, and development impact bonds. NPOs desirous of raising funds on the SSE will required to be registered with the exchange.