What are Market Linked Debentures (MLDs)?

Market Linked Debentures or MLDs are similar to Non Convertible Debentures but with a twist. In this type of debenture, the returns that the holders receive are not fixed. Instead, they are linked to a market index. Investing in MLDs can be extremely risky or substantially beneficial, depending on the condition of what it is linked to.

Investors receive returns based on the underlying index’s performance. The underlying index could include parameters like the gold index, equity benchmark, government yield, etc. The primary advantage of investing in MLDs is that investors get exposure. Besides this, it also benefits individuals in different market sectors, including NSE Nifty, G-sec, etc. 

How does a Market Linked Debenture (MLD) Work?

Every investor who invests in Market Linked Debentures is bound to link it to an underlying financial security instrument, such as a reputed stock market index or a government security paper having a fixed term of 10 years. Investors gain no revenue throughout the holding period or tenure of an MLD, and thus, they have to wait for the maturity date to arrive to redeem gains. Moreover, the sum an investor receives at the end of the maturity period is determined by the movement of the underlying asset. 

The issuer of the MLD, irrespective of who the holder is, holds the power to choose the security with which they wish to link the investors’ pay off to. However, the underlying index is the first preference since it is extensively traded. Moreover, it is not very convenient to manipulate it like other options, such as Sensex, Nifty, 10-year Government Bond yield, etc. 

Types of Market Linked Debentures:

There are two main types of MLDs. Here is a detailed look at both of them:

1.Principal Protected

Principal protected market linked debentures protect investors against the downsides of the underlying market sector. As opposed to other types of MLDs where the investors’ money is lost in case of a downside, principal-protected MLDs offer financial security to investors in case of any mishaps. A principal-protected MLD holder at least gets their principal back and a market-linked coupon. 

2.Non-principal Protected

Non-principal protected MLDs, as their name suggests, do not offer the principal amount back to investors in case of downsides or mishaps. As opposed to the principal protected MLDs, non-principal protected MLDs are riskier to invest in since no sort of compensation is provided to investors in case of downsides. 

Benefits of Market Linked Debentures:

Investing in MLDs offers numerous benefits. Here are some of the most prominent ones:

  • One of the most significant benefits of investing in Market Linked Debentures is that holders are highly prioritized when it comes to capital as well as interest repayments. MLD holders get priority over bondholders, which is why the majority of people prefer investing in MLDs.
  • MLDs feature a flexible structure, i.e, they can be molded and designed into multiple forms and structures to ensure fulfillment of different objectives under different circumstances.
  • MLDs are efficiently taxable instruments. The majority of MLDs are listed on stock exchanges. Moreover, after completing a holding period of a decade (10 years), the capital gains from listed debentures are payable at 10% after three years.
  • Market Linked Debentures offer a high yield on investment, which is why they are preferred by investors who are on the lookout for a higher fixed or variable rate of interest in a short-term period.
  • There are multiple outlets interested investors can explore to purchase MLDs. There are multiple websites offering MLDs, and hence, individuals can compare the benefits offered by each outlet and opt for the best option.
  • Compared to other sorts of financial investments, MLDs are better than most. For instance, as opposed to a pure equity investment where investors face a grave threat of capital loss, principal-protected MLDs offer more security and stability.  

How to Invest in MLDs? 

Thanks to the popularity of Market Linked Debentures, there are numerous ways following which interested individuals can invest in MLDs. For instance, individuals can choose a suitable online platform that offers options to invest in MLDs.

A great outlet is Yubi Invest. The platform offers users the convenience of investing in principal-protected MLDs without hassle. All any interested investor needs to do to get started on their MLD-investment journey is to sign up on the platform using their mobile number. Once they have signed, they can conveniently invest in MLDs by following simple steps. 

Advantages of MLDs Over Other Debentures for Issuers:

Besides being a beneficial instrument for investment, MLDs also offer issuers numerous advantages over other forms of debentures. Here are two of the most important ones:

  • While most other debentures require issuers to pay interest monthly or semi-annually in the form of a prefixed coupon, MLDs follow the system of a one-time payment. Market Linked Debentures offer issuers the convenience of servicing the debt with a single payment. The issuer pays the debt amount only once when the maturity period arrives.
  • MLDs benefit NBFCs or Non-Operative Financial Holding Companies in numerous ways. For starters, they diversify their sources of funds as HNIs. Moreover, it also facilitates NBFCs to raise funds multiple times since MLDs allow them to issue additional ISINs. 

What is the Taxation Impact of MLD?

Market Linked Debentures offer a massive tax advantage compared to other investment instruments. Return on MLDs are taxed at a mere 10% when they are put up for sale in the market after the completion of a year. Unlike debt mutual funds, which take three years to offer the same rate, MLDs provide exceptional post-tax returns to investors. 


Here are some of the most commonly asked questions regarding MLDs, along with their answers:

Q) Should I invest in Market Linked Debentures?

A) Market Linked Debentures are a good investment option for individuals looking to gain profits in the short term. However, like all other investment options, MLDs also involve a certain amount of risk. Since the returns of MLDs depend on the market index they are linked to, they can either be substantially risky or immensely beneficial. Hence, it is advised that individuals research well before investing in MLDs.

Q) What is the minimum investment in Market Linked Debentures?

A) The minimum amount any individual can invest in MLD is Rs. 10 lakhs.

Q) Is the yield in Market Linked Debentures more than bank FD?

A) Yes, the yield in MLDs is comparatively more than the yield amount of bank fixed deposits.

Q) What is the category of this instrument?

A) Market Linked Debentures are fixed income instruments whose return is linked to and determined by specific security or market index.

Q) What will be the mode of issue?

A) Market Linked Debentures are issued in the DEMAT mode only and are based on the Private Placement Basis.

Q)Is it possible to take an exit in secondary market when liquidity is needed

A) Yes it is. Since MLDs are listed, investors can sell it in the secondary market and get the market value based on the interest rate scenario existing at that point in time.