Market-Linked Debentures (MLDs)

An MLD is a debt instrument (a type of debenture/bond) whose final payoff (interest/return) is linked to the performance of a specified market asset or index — for example an equity index (Nifty/ S&P 500), gold, or another benchmark. Instead of a fixed coupon, the return depends on how the underlying performs over the term. MLDs are still debt securities and carry the issuer’s credit risk.

Explore Market-Linked Debentures (MLDs) with EquityUnlisted. Earn stable returns linked to market performance. Diversify your portfolio with smart investments.

Key features Market-Linked Debentures (MLDs)

Issued like a bond/debenture and typically repay principal at maturity (structure varies).
Returns are linked to an underlying index/asset — may pay nothing if the market underperforms, or provide enhanced returns if it performs well.Some MLDs are designed with partial or full principal protection; others are not — read the offering terms.
They carry issuer (credit) risk — if the issuer defaults, investors may lose money even if the underlying performed well.
Tax treatment and rules have changed in many jurisdictions (important for net returns) — check the current tax rules.

How an Market-Linked Debentures works — step-by-step (simple, concrete flow)

Issuer creates the MLD and sets terms
The issuing company (or financial institution) publishes an offer document with: issue price, face value, maturity date, the underlying used (e.g., Nifty, Gold), formula for payout, any principal-protection details, early-exit/liquidity rules, and credit rating (if any).
Investor buys the MLD
You subscribe (primary issue) or buy in the secondary market. Minimum investments can be higher than retail bonds — read the prospectus.
Underwriting / structuring (issuer hedges exposure)
The issuer typically hedges the market exposure with derivatives (options/swaps) so it can promise the structure. The investor does not directly own the underlying asset — they hold a debt claim whose payoff is linked to that asset.
Holding period (no periodic market-linked coupons in many designs)
Many MLDs do not pay periodic coupons. Instead, returns are computed at maturity based on the index/asset performance and the pre-set payout formula (e.g., participation rate, caps, barriers). Some designs offer periodic pay-outs — read specifics. Maturity — payoff calculation and principal repayment
At maturity the issuer calculates the payoff:
- If the structure has principal protection and issuer is solvent, you get your principal back + any market-linked gain (per formula).
- If the structure is unprotected and market performed poorly, your return can be zero or negative (you may get less than principal depending on design).
- If the issuer defaults, recovery depends on creditor hierarchy — you may lose principal irrespective of the market. Taxation / reporting
  Tax treatment depends on jurisdiction and specific structure. In India, tax rules were changed around 2023: MLD income/treatment was revised (check current law for whether gains are taxed as short-term income or LTCG). Always confirm with your tax advisor or the latest tax guidance.

Main risks to watch

Issuer (credit) risk — MLD is a debt claim; if issuer becomes insolvent you may lose money.
Market / underlying risk — returns depend on the underlying; you may earn nothing if it underperforms.
Liquidity risk — secondary market may be thin; exiting early can be costly.Complex payoff structure — caps, participation rates and barriers can limit upside. Tax / regulatory risk — tax rule changes can materially affect net returns (historically relevant in India).

Example (very simplified)

Issue: 3-year MLD linked to Nifty. Principal: ₹100,000.
Payout rule: If Nifty is up at maturity, you get principal + 80% of the Nifty gain; if Nifty is down, you get principal back (principal protected).
Outcome A (market up 20%): payoff = ₹100,000 + 0.8×20%×₹100,000 = ₹116,000.
Outcome B (market down 10%): payoff = ₹100,000 (principal protection applies).
(Real MLDs may include caps, participation rates, knock-in/knock-out features, and fees — read the