I received an email from a reader who is asking my opinion on investing in unit trust.

Hi KC,

I have few question that like to ask for your opinion. Currently i just want to start to make investment in unit trust, i have heard few unit trust that with capital protected guaranteed fund. I was attracted to the capital protected features but i have to lock my fund for 3 years with projected return of 6%-8%. They will invest in Zero-coupon Negotiable Instruments of Deposits (ZNID). May i known what is this investment, is it same as Bond?.

Some people said capital guaranteed fund are bad investment, is that true?

Apart of that I’m considering the Amanah Saham Gemilang by PNB, one of the feature ASG is we can sell off our unit immediately and get the cash if compare to Public mutual where we have to wait for 10 days. Is PNB a reliable institute and is investing in PNB are better than invest with Public Mutual.

What is Zero-coupon Negotiable Instrument of Deposit

First of all, let’s first understand what is a negotiable instrument of deposit (NID).

Negotiable Instruments of Deposit (NID)

NID is an instrument issued by a banking institution certifying that a certain sum in MYR or Foreign Currency has been deposited with the issuing bank for a certain tenor at a specified rate of interest (coupon rate may be fixed, floating or zero).

It does sounds like a Fixed Deposit (FD), but unlike FDs, NID is negotiable. This basically means that it can be sold before its maturity date. If the customer needs to realise cash before the NID maturity, he has to sell the NID. However, the NID cannot be withdrawn prematurely like in FDs.

Ok. Forget all the jargons, in layman term:

  • NID is something like FD where we give money to bank and get interest income
  • NID’s return rate is called coupon rate instead of interest rate
  • because the NID owner cannot withdraw the money he deposited before it matures, he has the option to sell it to other people who are interested to continue his NID. This feature is called negotiable. You can negotiate with your potential buyer to buy your NID.


These conditions are set by Hong Leong Bank. Other banks might vary.

  • Tenure available is between 1 month – 10 years. Tenor may also be fixed in odd number of days e.g. 105 days.
  • Amount must be placed in multiple of RM50,000 subject to a minimum deposit of RM100,000 per deposit. Minimum denomination is RM100,000 and maximum denomination is RM10 million per certificate.
  • NID rate is generally influenced by interbank rates and may be higher or lower than the bank’s FD rates.
  • However, for amounts that are below RM500,000, the rates are about the bank’s FD rates. Like REPO, larger amounts normally have a higher possibility of attracting better rates.
  • Like in FDs, there is no withholding tax on companies’ deposit. For individual deposits, a 5% withholding tax will be levied on interest for NIDs placed in excess of RM100,000 per certificate.

For more information about NID, you can contact Hong Leong Bank.

Zero Coupon

Coupon rate is the interest rate stated on a bond, note or other fixed income security, expressed as a percentage of the principal (face value), also called coupon yield.

Zero coupon investment means an investment that makes no periodic interest payments but instead is sold at a discount from its face value. The holder of a zero coupon investment realizes the rate of return through the gradual appreciation of the investment, which is redeemed at face value on a specified maturity date.

To calculate the yield, you can use this bond yield calculator.

Let’s say you invest in a ZNID, paying RM100,000 for the NID which will pay you back RM120,000 when mature after 3 years.
coupon rate = 0%  (zero coupon means coupon rate is zero)
tenor = 3 years

The yield to maturity is 6.266%. That means it is equal to an FD of 6.266% return per annum.

Now, I hope you understand what is a ZNID now. It is one of the money market instruments used by fund managers for low risk fund such as capital guaranteed fund, fixed income fund etc.

ZNID is not BOND

What is a a bond? It is  –

long-term debt security issued by corporations and governments offering
fixed interest payments periodically for a period of more than one
year. Bonds do not represent ownership; rather an investor who buys a
bond is actually lending money to the issuer, to help finance current
operations and new acquisitions of property, plant or equipment.

Bonds are issued when a corporations doesn’t have enough money to finance current operations or acquisition.

Simply think of it this way:
I am a big corporation. I need money now to expand. I don’t want to borrow from banks, nor issue more shares. So I issue bond to borrow money from other big corporations (insurance company etc) that wants to lend money to me.

So bond is not NID. NID is issued by banks.

In the coming post, we will discuss about capital guaranteed funds.

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Personal finance author and trainer

    9 replies to "What is a Zero-coupon Negotiable Instruments of Deposit (ZNID)?"

    • Joha Batte

      Hi Kc. You know how to make someone understand. I liked the way you have responded to the question about investing in a capital guaranteed unit trust. I learned something thank you so much.

      Kc I would like to know a major point that differentiate mutual funds and exchange traded fund (ETF)

      • KCLau

        ETF function like a Unit Trust, but it is traded on the stock exchange like normal stocks. So the price fluctuate based on supply and demand.

    • mohd fakrul faris

      Hi, I want to ask you some question…do you know anything about issue or case study about Negotiable Instrument of Deposit especially in Malaysia (hehe) since Im not the core student for this subject.. hope you can help me and i need to present this tomorrow. maybe you have the link regarding this subject. Thanks a lot

    • Vic


      Common capital protected fund is 90% invested in ZNID and 10% in option/derivatives. In the event there is a huge redemption, how would the fund be able to pay the redemption?

      Does the fund sell the ZNID or option to pay the redemption? If it sell the ZNID, does the Fund still protect the capital at 100%?

    • Davies

      Goodday, pls can you identify the parties involved in an NID, also the responsibilities, returns/benefits, risk and rights of each party. Who are the regulatory agencies,what is the pricing mechanisms and any tax treatment for this type of instrument

    • John

      Gd morning. i would like to invest in “Floating Rate Negotiable Instruments of Deposit (FRNID) & Islamic Negotiable Instruments of Deposits (NID-i)” . This is AM islamic product.
      I am intend to invest about 100k and the tenure is for 3 years.
      1. can i proceed as the due to date is 18th August.

    • […] seek capital protection from ringgit-denominated zero coupon negotiable instruments […]

    • Alex Goh

      Hi Sir, need your help here. I am looking for the Yield Formula that are currently use by Malaysia Securities/Bonds/NID market. Is there any standard formula to calculate the yield? Or where can i get the info from?

      Thanks for Your help. Have a nice day.

      Best Regards,

    • […] KCLau’s Money Tips A Malaysian compiling Lots of tips and advices on personal financial planning – Protect, accumulate, preserve, and manage your WEALTH wisely! « What is a Zero-coupon Negotiable Instruments of Deposit (ZNID)? […]

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