Market-linked debentures (MLDs) are a type of debt security that pay returns based on the performance of an underlying asset or index, such as a stock market index or commodity prices. These securities offer the potential for higher returns than traditional fixed-income investments, but also carry a higher level of risk.

Market-linked debentures (MLDs) are a type of debt security that pay returns based on the performance of an underlying asset or index, such as a stock market index or commodity prices. These securities are issued by companies and are similar to traditional bonds in that they pay a fixed rate of interest to investors, but unlike traditional bonds, the rate of interest paid is linked to the performance of an underlying asset.

MLDs offer the potential for higher returns than traditional fixed-income investments, but also carry a higher level of risk. The returns on MLDs are linked to the performance of an underlying asset, which means that if the asset performs well, the returns on the MLD will be higher, but if the asset performs poorly, the returns on the MLD will be lower.

It's important to note that MLDs are suitable for investors who are looking for higher returns and are willing to take on a higher level of risk. It's also important to understand the underlying asset and the factors that could impact its performance before investing in MLDs.

Capital Protected MLDs

These debentures provide a guaranteed return on the invested capital, even if the underlying asset performs poorly. They typically offer lower returns compared to other types of MLDs.

Bonus MLDs

These debentures provide a guaranteed return on the invested capital, plus a bonus if the underlying asset performs well. The bonus is typically a fixed percentage of the invested capital.

Participating MLDs

These debentures provide returns that are linked to the performance of the underlying asset. The returns are typically a percentage of the increase in the value of the underlying asset.

Index-linked MLDs

These debentures provide returns that are linked to the performance of a stock market index or other financial indexes. The returns are typically a percentage of the increase in the value of the index.

Currency-linked MLDs

These debentures provide returns that are linked to the performance of a specific currency or currency pair. The returns are typically a percentage of the appreciation or depreciation of the currency.

Commodity-linked MLDs

These debentures provide returns that are linked to the performance of a specific commodity or commodity index. The returns are typically a percentage of the increase in the value of the commodity.

Potential for higher returns

MLDs offer the potential for higher returns than traditional fixed-income investments, as the returns are linked to the performance of an underlying asset.

Diversification

MLDs can provide diversification for an investment portfolio, as the returns are not dependent on the performance of traditional fixed-income investments such as bonds.

Flexibility

MLDs offer flexibility as they can be linked to a variety of underlying assets, such as stock market indexes, currencies, commodities, etc.

Risk management

Some types of MLDs, such as capital-protected MLDs, provide a guarantee of the invested capital, even if the underlying asset performs poorly, which can be a way to manage risk.

Tax Benefits

MLDs are considered debt instruments and thus the interest income is taxed as per the tax slab of the individual. However, in some cases, the interest income is tax-free, like in the case of infrastructure bonds.

Taxation
No TDS on the interest of MLD since MLDs are listed on BSE.
Interest
10% Per Annum.
Credit Rating
IVR A-/Stable by Acuité Ratings & Research Limited.

Market Linked Debenture Issue Highlight