Investment in MLD/NLD does not assure returns, however, they are linked to the market. The returns are determined by the performance of the underlying index which could be equity benchmark, government yield, gold index, etc. Although, you can get exposure to other markets such as equity (NSE Nifty) or G-sec, without taking as much of a risk as a direct market investment.
Features of Investing in MLD
- The minimum amount of investment in MLD is Rs. 25 Lakhs.
- They are regulated by SEBI (The Securities and Exchange Board of India).
- MLDs do not pay any regular income; the payment is made only at maturity
- MLDs are rated by independent Credit Rating Agencies. The participation rate can be higher to entice investors if the MLD comes with a lower rating.
Types of Market Linked Debentures
- Principal protected
Capital Protection feature wherein here it is guaranteed that you will get back at least the principal amount on maturity, even if the movement in the other market is severely adverse.
- Non-principal protected
Investment in Non-principal protected products allows you to customize returns to fulfill their investment requirements. It provides full exposure to the market, whether the performance is positive or negative.
Benefits of Investment in MLD
- Principal protected with a participation rate linked to an underlying index of the product of investment.
- High return potential on completing an underlying equity condition of the MLD.
- You will get the principal amount on maturity, irrespective of market movement, Principal amount is protected.
- Coupons paid by MLDs depend on the performance of the underlying index of the investment.