Important Things To Know About Market-Linked Debentures In India

Market Linked Debentures


Market Linked Debentures in India are a growth story backed by a robust Government policy and philosophy. Listed from the past few years, here are some essential things you need to know about Market Linked Debentures in India.

What is a Market Linked Debenture?

A market-linked debenture is a type of debt instrument that is linked to the performance of a specified market index. The movements of the market index determine the interest rate on the debenture, typically either the S&P BSE SENSEX or NIFTY 50.

The principal amount of the debenture is repaid at maturity, regardless of the Index value at that time. In exchange for this certainty, investors in market-linked debentures typically receive lower interest payments than those on comparable fixed-rate instruments.

Market-linked debentures can be issued with maturities ranging from 1 year to 10 years. They are typically given in the dematerialized form and are traded on secondary markets like other debt securities.

Investors should be aware that market-linked debentures are subject to credit and market risks. The issuer may not be able to make payments if the Index falls below a certain level, known as the floor price. In addition, investors could only gain some or all of their investment if the Index performs as expected.


What are Market Linked Debentures, and how do they work in India?

Market-linked debentures (MLDs) are a type of debt instrument linked to a specific market index, such as the BSE Sensex or the Nifty 50. The interest rate on MLDs is generally higher than that of traditional fixed-rate debentures, as the issuer bears the risk of fluctuations in the underlying Index.

In India, MLDs have been issued by both public and private sector companies. Some notable issuers include Axis Bank, ICICI Bank, HDFC Bank, and Kotak Mahindra Bank.

The terms of MLDs vary from issue to issue. Still, generally speaking, they have a maturity of 5-10 years and can be redeemed at par or a premium/discount to par, depending on the performance of the underlying Index.

MLDs offer investors an opportunity to participate in the upside potential of the underlying Index while also providing some downside protection in case of a market correction. For instance, if an investor had purchased an HDFC Bank MLD with a face value of Rs. 1,000 when it was first issued in 2006 with a coupon rate of 8% p.a., then the current value of their investment would be approximately Rs. 4,500 (as of March 2016), assuming that the HDFC Bank stock price has doubled over this period.

Investors should be aware that MLDs are not without risk – if the underlying Index falls sharply, then the value of your

Reasons to Invest in India's Capital Markets

1. India's capital markets have been one of the best performing in the world in recent years.

2. The Indian stock market has shown substantial growth, with Sensex and Nifty reaching record highs in 2017.

3. Mumbai is home to the Bombay Stock Exchange, one of the largest stock exchanges in Asia.

4. India also has a large and growing population, which provides a large potential market for companies listed on the stock exchange.

5. The Indian government is committed to reforming and developing the capital markets, providing a favorable investment environment.



Key Features of a Market-Linked Debentures

1. Key Features of a Market Linked Debentures:

a) tenure: the market-linked debenture has a 5 to 10 years tenure.

b) interest rate: the interest rate on market-linked debentures is variable and is linked to the performance of a specified underlying index, such as the BSE Sensex or the Nifty 50.

c) coupon payments are made at regular intervals, typically semi-annually.

d) principal repayment: at maturity, the principal amount is repaid to the investor.

e) early redemption: investors can redeem their debentures before maturity, at par or a premium/discount, depending on the prevailing market conditions.

Reasons to Invest in the Indian Capital Markets

There are several reasons to invest in the Indian capital markets:

1. India is one of the fastest-growing economies in the world.

2. The Indian stock market has outperformed most other global markets recently.

3. The Indian capital market is highly diversified, offering investors various investment opportunities.

4. there is a growing pool of domestic savings that can be channeled into productive investments.

5. The Indian government has taken several measures to reform and develop the capital markets, making them more attractive to foreign investors.

Watch Now:- https://www.youtube.com/watch?v=jkfyCwb-RFk&t=6s

Conclusion

Investing in market-linked debentures in India can be a great way to earn good returns on your investment. However, before investing, you should know a few things, such as the risks involved, the different types of debentures available, and the fees charged by issuers. By understanding these things, you can make an informed decision about whether or not investing in market-linked debentures is right for you.

Read Out more about types of bonds available on India visit on our official website

 

 

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