← View all posts

Earn More Than Traditional Fixed Income with Market-Linked Debentures

03 May 2024 - Tushar
Reading time about 5 minutes

In today’s investment landscape, seeking higher returns often means taking on more risk. But what if there was an option that offered the potential for growth while also providing some capital protection? Enter Market-Linked Debentures (MLDs).

Market-Linked Debentures

Unlocking the Potential of MLDs

MLDs offer a unique blend of debt and equity characteristics, providing investors with a potential for higher returns than traditional fixed-income instruments while maintaining some level of capital protection.

How it Works: Imagine a loan with a guaranteed interest rate (like a fixed deposit) but also linked to the performance of an underlying asset (like a stock or index). This is the essence of MLDs.

Benefits

  • Higher Potential Returns: Compared to traditional fixed-income options, MLDs offer the chance for greater returns if the linked asset performs well.
  • Partial Capital Protection: MLDs often come with a minimum guaranteed return, safeguarding a portion of your investment even if the market dips.
  • Diversification: MLDs can add a layer of diversification to your portfolio, potentially mitigating overall risk.

Investing in MLDs

  • Understand the Risks: MLDs are not without risk. The potential for higher returns comes with the possibility of lower returns or even losses if the linked asset underperforms.
  • Choose the Right Issuer: Research the issuer’s creditworthiness and track record to ensure they can fulfill their obligations.
  • Consider Your Investment Horizon: MLDs may have lock-in periods or specific exit strategies, so align them with your investment goals.

Introducing Nifty Maximiser and Dual Advantage by Abans Investment Manager

Abans Investment Manager re-launching two attractive MLD options from 10th May 2024:

1. Nifty Maximizer (principal protected) - Series 87

  • Linked to Nifty / Principal Protected, Secured, Non-listed.
  • If Nifty gives any return in the range 0%-15% at the end of 15 months, then product will provide 1.5 times of that return. (e.g. if Nifty return is 10%, then product return will be 10*1.5 = 15%.
  • If Nifty gives a return more than 15%, then the product return is fixed at 22.5%.
  • Principal is protected if Nifty gives any negative return.
  • Maximum absolute return of 22.5% (17.85% CAGR).
  • Starting and Closing Nifty levels will be noted on 10th May 2024 & 31st July 2025 for calculating product return.
  • Redemption Date – 04/08/2025.

SCENARIO ANALYSIS Assumed initial Nifty = 22,500

Final Nifty Level Nifty Return (Absolute) Product Returns (Absolute) Product Returns(CAGR)
0 -100.00% 0.00% 0.00%
21375 -5.00% 0.00% 0.00%
22500 0.00% 0.00% 0.00%
23625 5.00% 7.50% 6.03%
24300 8.00% 12.00% 9.61%
24750 10.00% 15.00% 11.98%
25200 12.00% 18.00% 14.33%
25875 15.00% 22.50% 17.85%
29250 30.00% 22.50% 17.85%

2. Dual Advantage (principal protected) - Series 88

  • Linked to Nifty / Principal Protected, Secured, Non-listed.
  • Min. 10% absolute return (6.63% CAGR) if Nifty gives returns less than 10% (including Nifty negative return) after 18 months
  • If Nifty gives return between 10 to 25% then product will also give the same Nifty return,.
  • If Nifty gives return of more than 25%, then the product return is fixed at 25%. (Return Scenario on last page of product note).
  • Maximum absolute return of 25% (16.22% CAGR). Starting and Closing Nifty levels will be noted on 10th May 2024 & 30th Oct 2025 for calculating product return.
  • Redemption Date – 03/11/2025.

SCENARIO ANALYSIS Assumed initial Nifty = 22,500

Final Nifty Level Nifty Return (Absolute) Product Returns (Absolute) Product Returns(CAGR)
0 -100.00% 10.00% 6.63%
20250 -10.00% 10.00% 6.63%
22500 0.00% 10.00% 6.63%
23625 5.00% 10.00% 6.63%
24750 10.00% 10.00% 6.63%
25875 15.00% 15.00% 9.87%
27000 20.00% 20.00% 13.06%
28125 25.00% 25.00% 16.22%
29250 30.00% 25.00% 16.22%

Taxation of MLDs

Market-Linked Debentures (MLDs) taxation can be slightly different compared to traditional fixed-income instruments. Here’s a breakdown:

Changes as of April 1, 2023:

  • Previously: Gains from selling MLDs held for over 1 year were considered Long-Term Capital Gains (LTCG) and taxed at a flat rate of 10% (plus surcharge), making them attractive for investors seeking tax efficiency.
  • Currently: As per the Finance Act 2023, any gains from transferring or redeeming MLDs are classified as Short-Term Capital Gains (STCG) and taxed at the investor’s marginal income tax rate (slab rate). This means HNIs falling in higher tax brackets could face a tax rate of up to 30% (plus surcharge) on their MLD gains.

Remember: MLDs can be a valuable tool, but thorough research and understanding your risk tolerance are crucial before investing. It’s crucial to consult with a financial advisor to understand the specific tax implications of MLDs based on your individual circumstances and investment goals.

Join WhatsApp/Telegram Channel
Join our channels for exclusive investment, finance, and insurance updates, fun content, and more.