An Investor’s Guide to Market Linked Debentures in India

Market Linked Debentures in India

The market has given you the opportunity to invest in both stocks and bonds, but there may be one thing missing- Market linked debentures. It offers investors two unique opportunities, but it comes with its own set of risks and rewards that differ from traditional options like stocks and bonds. Before you jump into this type of investment, be sure to read this investor’s guide to market-linked debentures in India.

Many investors may have heard of market-linked debentures and asked the question, what are market-linked debentures? This article will explain exactly what market-linked debentures are as well as where to find them in India as an investment opportunity. It will also go over the features of the same and how they can benefit you as an investor. So, let’s get started!

What are MLDs?

Market Linked Debentures (MLD) are the fixed income instruments, regulated by SEBI, whose returns are linked to either a particular security or market Index such as government security, gold index fund, or Nifty Index fund, etc.

Majorly there are two types of Market Linked Debentures-

  • Principal Protected
  • Non-Principal Protected

How do they work?

For example, XYZ Company issues MLD @10% p.a coupon maturing in 16 months. The coupon is paid only on condition that the Nifty Index does not fall more than 25%. If the index falls more than 25% then only the principal is returned (No interest is paid). This is an example of a principal-protected MLD.

While the above example illustrates a very simple structure, there are various complex structures like less than 100% principal protection, principal protection with a participation rate linked to an underlying index, etc.

Features of Market-Linked Debentures

  • Market Linked Debentures come at a face value of Rs. 10 lakh per MLD (usually).
  • The most significant advantage is that you can get the exposure and benefit of investing in other markets such as equity, government security, gold index fund, etc., without taking as much risk as investing directly into that asset.
  • Regular Fixed income is not paid on MLDs like bonds and the interest earned, if any, is paid only at the time of maturity.

Benefits of MLD:

Benefits of MLD

  • Hybrid Exposure to asset classes

The primary benefit of investing in Market Linked Debentures is that it allows a person to profit from the growth of other markets without actually investing in them, such as equity or G-secs.

  • A multitude of options

A lot of reputable companies with excellent credit scores have also recently entered this market. An investor can thus choose from a large selection of debentures with a high credit profile and a variety of base markets.

  • Safeguarded against negative risks

Principal-safeguarded MLDs ensure that an investment is safeguarded from the underlying market’s downturn. Therefore, Market Linked Debentures protect an investor’s principal investment as opposed to a direct equity transaction, where the capital is lost in the event of a downside.

  • Superior return potential in comparison to traditional investments

When compared to more conventional investments like fixed deposits, or such as those, Market Linked Debentures provide investors comparable benefits because they allow them to profit from a market’s rising performance and are also tax efficient. Compared to the two conventional asset kinds, the structure is in a sweet spot.


Overall, this is useful for people who understand the complexities, have a high-risk appetite, and wants to avail tax advantage can think of investing in this new age Market Linked Instruments. MLD can be a superior way to participate in times when the market looks like they are going to fall as a downside can be a good bet as well.

However, it must be noted that principal repayment in the case of MLD is also subject to the issuer’s credit risk, therefore thorough due diligence of the issuers underlying business, its diversification, its financial ratios, credit rating assigned, etc. should be undertaken before investing and make sure you know what you’re buying!

How can we buy MLDs?

You can simply register on portal, complete KYC online and buy bonds.

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