What is the profit mechanism for ZDPs?

• A. Regular fixed dividends.
• B. Capital gains on sale of assets during the life of the ZDP.
• C. Profit from the difference between the issue price and the repayment amount at maturity.
• D. Bonus shares issued on maturity.

Answer: (C)

Zero Dividend Preference shares fund returns through a capital gain realized at maturity, not through ongoing income. They are issued at a price below the amount they pay back at the fixed maturity date, so the investor’s profit is the difference between the purchase price and the predetermined redemption amount at maturity. There are no regular dividends or interim gains from selling assets during the life of the instrument, which is why the payoff is all about the lump-sum repayment at maturity. Bonus shares or other equity-like rewards don’t apply here—the structure is simply buy at a discount and redeem at a fixed amount.