Blend the stability of fixed income with market-linked upside potential.

Market Linked Debentures (MLDs) are also known as structured products. They are aimed at providing targeted ROI/Payoff to investors. It combines debt instruments with market-linked returns.

The returns are dependent on the performance of the underlying market benchmark selected by the issuer of the MLD, such as Nifty 50, Nifty 100, or 10-Year G-Sec.

MLDs can be structured to offer principal protection, making them an ideal choice for investors looking to balance safety with growth potential.

In India, recent RBI guidelines have allowed such issuance for even INR 1 lakh – versus the INR 10 lakh limit earlier.

A Market Linked Debenture (MLD) is a debt instrument where returns depend on the performance of an underlying index, such as an equity index or interest rate. Here’s a quick overview of how it works:

• Structure: You lend money to the issuer, and your returns are linked to a financial benchmark.
• Returns: At maturity, your payout is based on how the benchmark performed. If it performed well, you earn positive returns; if not, returns could be lower or zero.
• Risk & Tax Benefits: MLDs often offer capital protection and, if held for over a year, can be eligible for long-term capital gains tax, making them tax-efficient compared to traditional debt instruments.

MLDs provide market-linked growth potential with capital protection, suitable for those looking to diversify with some market exposure.

The minimum investment for off-the-shelf MLDs starts at INR 1 lakh. For custom-structured MLDs, the minimum investment is usually INR 3 crores.

Yes, MLDs are suitable for first-time investors who want market participation but prefer the safety of principal protection.

• Diversification: Access equity and debt in one product.
• Higher Returns: Potentially outperform traditional fixed-income investments by capturing equity-linked returns.
• Capital Protection: Enjoy a safety net with minimum return floors.
• Tax Advantage: Taxed at marginal tax rate irrespective of holding period.
• Customizable Structures: Tailored to meet specific risk and return goals.
• Transparent Ratings: Easy risk assessment through clear credit ratings.

MLDs are taxed at marginal tax rate irrespective of holding period under Sec 50AA of Income Tax Act.

Below are the key risks of investing in MLDs:

• Market risk: The returns on MLDs are tied to the performance of an underlying market benchmark. While MLDs often come with a minimum return (floor) and a maximum return (cap), there is a risk that the actual returns could exceed the cap, limiting potential gains.
• Credit risk: This risk arises from the possibility that the issuer may fail to meet its obligations to repay the principal or interest. This risk is similar to what investors face with regular corporate bonds or deposits.
• Liquidity risk: MLDs may lack a robust secondary market, making it difficult for investors to sell their holdings before maturity. Given their customized nature, the full potential of MLD returns is typically realized only upon maturity.