Best Market Linked Debentures in India
Procedure and Taxation
Market Linked Debentures (MLDs) are fixed-income instruments where returns are tied to market indices like Nifty, Sensex, or government securities, instead of offering fixed interest. Popular in India among HNIs and corporates, they are issued by firms like Edelweiss, Nuvama, IIFL, and JM Financial, primarily through private placements, not stock exchanges. A key feature is principal protection, meaning the original investment is returned even if market performance is poor. Earlier, MLDs held for over a year attracted only 10% LTCG tax, but since April 1, 2023, all gains—regardless of holding period—are taxed as short-term capital gains as per the investor’s income slab, reducing post-tax returns for high-income individuals. MLDs typically have tenures of 13 to 60 months, require a minimum ₹10 lakh investment, and are regulated by SEBI. They are ideal for those seeking market participation with capital safety, especially in volatile or low-interest environments, though they may not suit investors wanting guaranteed or tax-efficient returns.
Market Linked Debentures Meaning – Explained in Simple Terms
What Exactly Are Market Linked Debentures?
Market Linked Debentures are a type of bond where the returns are not fixed. Instead, the final return depends on how a certain market index or asset performs. Common benchmarks include Nifty, Sensex, or 10-year Government Securities (G-Secs).
- Returns are linked to market performance.
- Principal is generally protected, ensuring capital safety.
- The return formula is defined in advance and depends on pre-agreed market conditions.
Where Are Market Linked Debentures Available in India?
MLDs are primarily available through private placements and are generally offered to high net worth individuals via wealth management firms and investment advisors. Leading issuers in India include:
| Issuer | Specialization |
|---|---|
| Edelweiss | Wide range of principal protected MLDs |
| Nuvama Wealth (ex-Edelweiss) | Customized structured market products |
| IIFL | Equity and fixed income-linked MLDs |
| JM Financial | Barrier-based and G-Sec linked MLDs |
These instruments are not typically listed on stock exchanges and are accessed through financial intermediaries.
When Did the Taxation Rules for MLDs Change?
A significant update came through the Union Budget 2023. Starting April 1, 2023, all gains from MLDs are treated as short-term capital gains, taxable at the individual’s income slab rate.
Earlier:
- MLDs held for over 12 months were taxed at just 10% LTCG.
- Now, regardless of whether the holding period is short or long, all gains are taxed as per your slab.
This affects post-tax returns, especially for those in higher tax brackets.
Taxability of Market Linked Debentures – Latest Rules
| Holding Period | Taxation Before April 2023 | Taxation After April 2023 |
|---|---|---|
| Less than 1 year | Taxed as per income slab | Taxed as per income slab |
| More than 1 year | 10% Long-Term Capital Gains | Taxed as per income slab |
Why is this important?
Because for individuals in the 30% tax bracket, post-tax earnings have reduced considerably. However, the structured nature of MLDs still offers value in terms of risk-managed returns.
Principal Protected Market Linked Debentures – What, Why, and How
Many MLDs are designed with principal protection. This means:
- If the market performs poorly, the investor still gets back the original investment amount.
- Returns may be lower or zero in such cases.
- If market conditions perform well, the investor gains a pre-agreed payout.
This structure is ideal for investors looking to minimize risk but still explore market-based returns.
How Do Market Linked Debentures Work?
Here is a simplified example:
An investor puts ₹10 lakhs into an MLD linked to the Nifty index.
- If Nifty crosses a set level (say 18,000) on the maturity date, the investor receives an 8% to 10% return.
- If Nifty doesn’t meet the condition, the investor gets back the ₹10 lakhs, but no extra return.
Hence, MLDs provide market exposure with limited downside.
Who Should Invest in Market Linked Debentures?
MLDs are best suited for:
- High Net Worth Individuals (HNIs)
- Corporate treasuries
- Wealth planners and advisors
- Retail investors looking for capital-protected market participation
These instruments are ideal for those who want moderate returns with capital protection and are okay with conditional returns.
Which Are the Best Market Linked Debentures in India?
Though MLDs are not publicly rated, the following are commonly preferred:
| Issuer | Known For |
|---|---|
| Edelweiss | Nifty-linked principal protected debentures |
| Nuvama | Customized G-Sec and equity-linked products |
| IIFL | Structured debentures with capped returns |
| JM Financial | Barrier-based and basket-linked MLDs |
These MLDs are usually customized and offered during private issuance rounds.
When Should One Invest in Market Linked Debentures?
Ideal times to invest in MLDs include:
- When markets are uncertain or flat
- When fixed deposit rates are not attractive
- When the investor prefers risk-managed products over equity mutual funds
MLDs act as a middle path between debt and equity, making them useful in portfolio diversification.
Whether MLDs Are SEBI Regulated?
Yes. Market Linked Debentures fall under SEBI’s regulations. They are governed by:
- SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021
- Only companies with valid credit ratings and listing approval can issue MLDs
Final Words: Are Market Linked Debentures Worth It?
Yes, Market Linked Debentures can be an excellent investment if:
- You prefer a mix of market returns and capital safety
- You want to reduce equity exposure but still want better returns than FDs
- You are a high net worth individual or informed investor
Not suitable for:
- Investors seeking guaranteed fixed returns
- Individuals in higher tax brackets not comfortable with slab-based taxation
Quick Snapshot – Everything You Must Know About Market Linked Debentures
| Feature | Details |
|---|---|
| Return Mechanism | Linked to market indices or asset classes |
| Capital Protection | Available in most products |
| Common Tenure | 13 months to 60 months |
| Taxation (Post-2023) | Short-term gains taxed as per income slab |
| Availability | Through wealth managers and private placement only |
| Suitable For | HNIs, risk-averse investors, portfolio diversification seekers |
| Minimum Investment | ₹10 lakhs (usually) |
