Market Linked Debentures
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MLDs (market-linked debentures) are bonds offering an uncertain payoff to investors. The payoff is ascertained towards the maturity of the bond, depending on the clearly defined underlying condition. A market-linked debenture does not pay any coupon before maturity. On maturity, apart from the initial principal component, there is a pay-off, i.e., a return payable. This pay-off depends on the movement of underlying asset.
Market-Linked debentures allow you to position your portfolio for volatile markets and provide diversification that might be difficult to achieve with traditional investments. Designed to meet specific objectives, they are debt securities that combine some of the features of traditional bonds with a return potential determined by the performance of another asset or assets. Some of the assets they may be linked to include market indices, individual stocks, commodities, foreign exchange and interest rates.
FLEXIBILITY:
Market-Linked debentures can be used to implement a wide variety of market views.
SIMPLICITY:
Market-Linked debentures reduce financial, tax, legal and operational issues by combining strategies into a single packaged solution.
DIVERSIFICATION:
Market-Linked debentures provide access to a wide variety of asset classes, including some not readily available to individual investors.
ENHANCED RISK/RETURN PROFILES:
Market-Linked debentures may provide full or partial market downside protection and/or enhanced return potential.
What to Consider Before Investing in Market-Linked Debentures?
Market-Linked debentures may not be suitable for all investors. Your decision to invest in Market-Linked Investments should be made after you have considered the risks of a particular Market-Linked Investment, including its market risk, credit risk and risks of the market measure, in light of your:
•View of the potential performance of the underlying asset
•Investment time horizon
•Liquidity needs
•Financial and tax situation
•Overall risk tolerance
•Investment objectives
•Portfolio diversification
•Overall asset allocation strategy
Market-Linked Debentures are tax efficient too as long term capital gains (LTCG) on listed Market-Linked Debentures is taxed at only 10%.