Market Linked Debentures – 3 in 1 Investment Solution

Tired of watching your friends celebrate their stock market gains while your fixed deposit returns barely beat inflation? I get it. As an investor, you're probably stuck between wanting to protect your hard-earned money and dreaming of those attractive market returns. Let me introduce you to Market Linked Debentures (MLDs) – a unique investment that might just be the answer you're looking for.

Here's what makes MLDs fascinating: imagine getting the best of both worlds – the safety of your principal amount AND the opportunity to earn market-linked returns. Sounds too good to be true? Let me break it down for you.

Think of MLDs as your financial bodyguard with an entrepreneurial spirit. The magic lies in how they're structured. A significant portion of your investment (typically around 80-85%) goes into fixed-income securities. This core investment works silently in the background, growing at a predetermined rate to ensure your initial investment amount is safe at maturity. The remaining portion? That's your ticket to market returns, invested in derivatives linked to market indices or specific stocks.

But here's something crucial you need to know – MLDs come with a strict no-exit clause. Once you're in, you're in for the complete duration. There's no getting out halfway, no emergency exits, no changing your mind. Why? Because the product's structure needs time to work its magic. Breaking it midway would disrupt the entire mechanism designed to protect your capital.

Let me share some exciting variants of MLDs I've seen in the market:

Want to play it relatively safe? Try the Nifty-linked MLDs. These offer multiplier returns – imagine earning 5% for every 1% rise in Nifty. Some even offer unlimited upside participation, letting you ride the market waves to their full height.

Feeling more adventurous? Stock-linked MLDs might be your thing. These beauties can offer leveraged returns – picture getting 1.8% returns for every 1% increase in a blue-chip stock like Reliance. It's like having your market cake and eating it too!

Now, you might be wondering – who should consider MLDs? You're a perfect candidate if:

- You break into a cold sweat thinking about losing your capital in the stock market

- Your fixed deposit returns make you yawn, but direct equity keeps you up at night

- You're willing to lock in your money for the entire tenure (remember, no exit option!)

- You understand that patience is key – these are not get-rich-quick schemes

The taxation? Simple – it's based on your tax slab. No special treatment here, just straightforward taxation based on your income bracket.

In the world of MLDs, experience matters. Companies like Nuvama and Abans have been crafting these products for years, earning their stripes in the market. They've seen market ups and downs and have fine-tuned their offerings accordingly.

A word of caution though – MLDs aren't your typical open-ended mutual funds. The no-exit policy means you need to be absolutely certain about your investment horizon. It's like boarding a train – once it starts, you're riding it till the destination.

So, is an MLD right for you? Ask yourself:

- Can you sleep peacefully knowing your money is locked in?

- Are you comfortable with the return structure?

- Does the investment tenure match your financial goals?

- Are you clear about how the returns are calculated?

The bottom line? MLDs are like that reliable friend who promises to protect your money while trying to make it grow. They won't make you a millionaire overnight, but they won't let your capital sink either. Just remember – once you're in, you're in for the ride. Make sure you're ready for the journey before you hop on board.

Have more questions about MLDs? That's normal – it's a sophisticated product that deserves your due diligence. Take your time, understand the structure, and make sure it aligns with your investment goals. After all, it's your hard-earned money we're talking about!

By - Akshat Garg, CFA, CFP

AVP - Research & Product

Choice