The corporate affairs ministry has opened a new funding channel for nonprofits, allowing companies to direct up to 10 per cent of their mandatory corporate social responsibility spending into zero coupon zero principal instruments listed on the Social Stock Exchange, in a move aimed at deepening transparency in social sector financing.

The amendment, effective immediately, inserts the subscription to such instruments into Schedule VII of the Companies Act, 2013 — the schedule that governs permissible CSR activities for profit-making companies required to spend at least 2 per cent of their three-year average net profit annually on social causes.

Under the revised CSR Policy Rules, 2014, definitions for both not-for-profit organisations and zero coupon zero principal instruments have been formally introduced for the first time, providing regulatory clarity to companies seeking to deploy funds through the Social Stock Exchange.

Not-for-profit organisations will be able to issue these instruments through the Social Stock Exchange in accordance with regulations set by the Securities and Exchange Board of India, the ministry said in a statement on Friday.

Unlike conventional bonds, zero coupon zero principal instruments carry no interest payments and no repayment of principal, functioning instead as a regulated grant or social investment vehicle designed to fund public welfare projects.

“It helps in furtherance of a transparent and credible mode of funding CSR projects by companies and enables social enterprises to access a wider pool of capital,” said Anshul Jain, Partner Regulatory at PwC India.

The 10 per cent cap on CSR Social Stock Exchange investments per financial year is intended to balance innovation with fiscal discipline, ensuring core CSR commitments remain intact while creating fresh pathways for social capital mobilisation.

The Social Stock Exchange, established under SEBI oversight, is designed to bring market discipline and disclosure standards to social sector funding — a segment historically dominated by opaque grant-making and bilateral philanthropy.