Tata Capital > Blog > Wealth Services > Market-Linked Debentures (MLDs)
MLDs or Market-Linked Debentures seem to be the hot favorite of the braver breed of investors trying to step outside the cozy fixed-income circuit. They They are hybrid instruments that combine elements of capital market participation with features of traditional debt-like structures. It makes them attractive to investors who are seeking performance correlated to the market, yet want safety to some extent. But MLDs can be confusing if you’re hearing about them for the first time. This guide breaks the concept down so that you can determine if they have a place in your investment portfolio.
MLDs are debt instruments where the final return depends on how a specific market index or benchmark performs. Unlike fixed deposits or traditional bonds, MLDs don’t offer assured interest. Instead, returns are correlated to indices like equity markets, government bonds or commodity indices such as gold. They normally have a maturity between 1 and 5 years. They then receive their original capital back at the end of the term, along with any returns linked to market performance.
Before proceeding, you must understand each term associated with MLDs.
MLDs combine debt and market exposure in a structured format. Here’s a simplified flow:
If the index performs poorly:
Feature | Advantages | Risks |
Return Potential | Higher than FDs or traditional bonds | Not fixed; depends on index |
Capital Protection | Available in some variants | Absent in high-yield options |
Taxation | 10% held for over a year | Subject to regulatory changes |
Liquidity | Listed MLDs tradable | Unlisted may be illiquid |
Risk | Customisable to investor type | Credit and market risk apply |
Feature | MLD (Market Linked Debenture) | NCD (Non-Convertible Debenture |
Return Nature | Returns depend on market performance | Fixed interest payout |
Risk Level | Market and credit risk | Mostly credit risk |
Capital Protection | Available in structured products | No such feature |
Taxation | Lower tax if held >12 months (listed) | Taxed as per slab or 20% with indexation after 3 years |
Here are a few reasons MLDs are gaining attention:
MLDs are not your everyday debt product. They want market-related performance and structural details to be disclosed. For sophisticated investors with an ample craving for risk and long-term goals, they can be a smart portfolio add-on. But given that the deal can become a little complicated and tailored, it is not such a bad idea to have a word with your trusted financial adviser and the experts at Tata Capital Wealth before you take the leap. It is their advice that can assist you in choosing MLDs that are commensurate with your return objectives and risk tolerance.
Corporates, especially NBFCs, may issue market-linked debentures to raise funds through structured debt instruments.
The minimum investment in MLDs usually ranges from ₹10- ₹25 lakhs based on the issuer and the structure.
The time frame for market-linked debentures is typically 1-5 years, determined by the issuer and disclosed in the offering document.
All listed MLDs held for more than 1 year attract a tax of 10% long term capital gains. But there is already a precedent for changing taxation rules in response to regulatory updates, so investors should read the latest guidelines before they invest.
MLDs can be linked to various underlying indices such as equity indices (e.g., NIFTY 50, Sensex), government securities (G-Sec) yields, interest rate benchmarks, or even commodity indices like gold—depending on the product structure.
MLDs can be bought from registered financial advisors, wealth management platforms, or directly from issuers, such as NBFCs and investment companies— usually through private placements or brokers in case of listed securities on the stock exchanges.