Market Linked Debentures are debentures where the pay-off is not defined as in a regular coupon-bearing debenture, but linked to the movement in another security or index such as NSE Nifty index or 10-year government security (G-sec) yield. For example, a 30-month MLD would pay the investor a pre-defined IRR at the end of the tenure if Nifty 50 Index does not fall by more than 75%. Market-Linked Investments may provide full or partial market downside protection and/or enhanced return potential.
A market-linked debenture does not pay any coupon before maturity. On maturity, apart from the initial principal component, there is a pay-off, i.e., a return payable. The advantage is that you are getting the exposure and upside in other markets such as equity (NSE Nifty) or G-sec, without taking as much of a risk as in investing directly into that asset.
If you invest directly in the Nifty or gold and Nifty or gold value declines over the investment horizon, you would lose a part of the principal.
Market-Linked Investments provide access to a wide variety of asset classes, including some not readily available to an individual investor. Further, these investements may provide full or partial market downside protection and/or enhanced return potential.
Non-convertible debentures (NCD) are fixed-income instruments. They are usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer higher interest rates compared to convertible debentures.
A market linked debenture is a loan taken by the company from the market with no provision of any fixed rate of interest. However, the return to the investors is dependent on some market index like Nifty or Sensex.