KNOWLEDGE CENTER-

Market Linked Debentures

Market Linked Debenture are non- convertible debentures where returns are not fixed however they are linked to the market.

The returns are determined on the performance of the underlying index and underlying index could be equity benchmark, Government yield, gold index etc.

The advantage is that you are getting the exposure and upside in other market such as equity, (NSE Nifty) or G-sec, without taking as much risk as in investing directly into that asset.

Who issues these bonds?

• Market Linked Debentures are issued by corporate with a minimum net worth of Rs 100 crore
• Each issuer is free to choose the underlying index or security to which payoff of investor is linked. Generally, a widely traded asset is chosen as underlying asset so that it is not easy to manipulate.

Key Features

• MLDs are debt product wherein the investors are generally sophisticated investors as this product is complex and has a high investment

• The minimum amount of investment in MLD is Rs 25.

• They are generally issued with the tenure of (1 to 5) years.

• They are regulated by SEBI (Securities Exchange Board of India).

• Unlike a bond that pays a fix interest either monthly, quarterly, half yearly or annually, MLDs do not pay any regular income; payment is made only at maturity.

• MLDs may be listed/unlisted or secured/unsecured. They are liquid instruments which are bought back by the issuers on time. MLDs are highly customized as they cater to sophisticated investor base.

• MLDs come with a Capital Protection feature where  it is guaranteed that you will at least get your principal amount on the maturity, even if the movement in the other market is severely adverse. Therefore, your downside is protected because in worst case, you will get zero return but you will get back your investment amount. back. On the other hand, if the movement in the other market is favourable you will get commensurate returns.

• MLDs are rated by independent Credit Rating Agencies. The participation rate can be higher to entice investors, if  MLD as a lower rating.

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 Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors yet to be SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.