Market Linked Debentures (MLDs): Smarter Returns, Lower Risk

What Are Market Linked Debentures?

In today’s dynamic investment landscape, finding the right balance between returns, risk, and tax efficiency is crucial. One alternative investment product gaining attention among informed Indian investors is the Market Linked Debenture (MLD).

At getultra.club, we curate modern, fixed-income opportunities like bonds, asset leasing, and invoice discounting — and MLDs fit perfectly into this spectrum. Here's everything you need to know to decide if MLDs deserve a place in your portfolio.

Market Linked Debentures (MLDs) are non-convertible debentures (NCDs) whose returns are tied to the performance of a market index (like Nifty 50, Sensex) or financial metric (e.g., G-Sec yields, gold prices). Unlike regular bonds that pay fixed interest, MLDs offer market-dependent returns with the benefit of principal protection in many cases.

In essence, MLDs give you exposure to market upside with a bond-like safety net, making them a hybrid instrument suitable for risk-aware, return-seeking investors.

Why Investors Are Choosing MLDs

Market-Linked Returns

Earn better-than-fixed-deposit returns when markets perform well, especially in bullish or stable scenarios.

Capital Protection

Most MLDs offer full or partial principal protection, ensuring your invested capital remains safe.

Tax Efficiency

MLDs enjoy favorable long-term capital gains (LTCG) treatment after 12 months—taxed at just 10% (without indexation), making them more efficient than FDs or regular bonds.

Portfolio Diversification

They bridge the gap between equity and debt—perfect for diversifying away from pure market or interest-rate risk.

How Do Market Linked Debentures Work?

Here's a quick flow of how MLDs function:

1. You invest in an MLD issued by a financial institution.

2. Your return depends on the performance of a chosen index or benchmark.

3. Payout structure varies: some MLDs offer zero-coupon (lump sum at maturity), others offer conditional coupons.

4. At maturity, you receive either:

• Just the principal (if index didn’t perform)

• Principal + variable return (if index met conditions)

Many MLDs come with pre-set conditions (e.g., Nifty not falling below a level), giving them a defined risk-return framework.

Taxation of Market Linked Debentures

Long-Term Capital Gains (LTCG)

• Holding Period: More than 12 months

• Tax Rate: 10% (without indexation)

• Advantage: Better than FD interest (taxed as per slab)

Short-Term Capital Gains (STCG)

• Holding Period: Less than 12 months

• Tax Rate: As per investor’s income tax slab

For HNIs and investors in 30% tax slabs, MLDs provide significant post-tax advantage over traditional debt instruments.

Best Market Linked Debentures in India (2025 Edition)

While MLDs are not available in the secondary market easily, reputed NBFCs and institutions issue them regularly through private placements and platforms like getultra.club.

Edelweiss MLDs

• Linked to equity indices like Nifty 50

• Structured for stability with upside triggers

• Popular among conservative growth seekers

IIFL Finance MLDs

• Offers principal-protected MLDs tied to equity or G-Sec benchmarks

• Good reputation and transparent documentation

JM Financial Products MLDs

• Provides high-quality structured MLDs

• Includes both market-linked returns and capital protection features

Who Should Invest in MLDs?

MLDs are suitable for:

High-income individuals looking for tax-optimized fixed-income returns

Investors seeking diversified alternatives to traditional debt instruments

Conservative investors who still want some exposure to market upside

Investors with a medium-term horizon (2–5 years)

They are not ideal for:

• Traders needing short-term liquidity

• Investors uncomfortable with conditional or variable returns

Risks of Market Linked Debentures

While MLDs offer several benefits, consider the following risks:

• Issuer Risk: Since MLDs are unsecured, default by the issuer can result in loss.

• Market Risk: If the underlying index doesn’t perform, returns could be lower or nil.

• Liquidity Risk: MLDs are typically non-tradable before maturity; exit options may be limited.

Always review credit ratings and term sheets before investing.

FAQs: Market Linked Debentures Explained

1. What are Market Linked Debentures (MLDs)?

MLDs are non-convertible debentures whose returns depend on the performance of an index (like Nifty 50), offering equity-like returns with bond-like security.

2. How are MLDs taxed in India?

Held over 1 year: LTCG at 10%.

Held under 1 year: STCG as per your tax slab.

3. Are MLDs safe investments?

They carry moderate risk—though principal is often protected, returns depend on market outcomes and issuer creditworthiness.

4. How do I invest in MLDs?

Via registered investment platforms or advisors. You’ll need a Demat account, and MLDs are usually offered via private placement.

5. Who should avoid MLDs?

Investors needing short-term liquidity or unwilling to accept variable returns may prefer regular bonds or FDs.

Final Thoughts

Market Linked Debentures are a modern, tax-efficient way to invest in India’s growth story, combining the upside potential of equity with the predictability of fixed-income. They aren't for everyone—but if you're looking to level up your debt portfolio with diversified, structured returns, MLDs are worth a closer look.

Ready to explore more fixed-income opportunities beyond the usual?

Visit getultra.club to discover MLDs, bonds, leasing, invoice discounting and more—handpicked for modern Indian investors.