Working of Market-Linked Debentures
Market-Linked Debentures (MLDs) are a type of debt security that combine the features of traditional fixed-income investments with exposure to equity market returns. MLDs allow investors to participate in the equity market's potential for gains while protecting against downside risk. This blog will discuss how MLDs work and their benefits and risks. How MLDs Work MLDs are structured as bonds issued by corporations or financial institutions linked to a specific underlying asset or index. The underlying asset can be a stock index, commodity, or currency exchange rate. The return on the MLD is then tied to the underlying asset's performance or index. For example, if an MLD is linked to the S&P 500 index, the return on the MLD will be based on the performance of the S&P 500 index over a specific period. If the index performs well, the MLD will return more than a traditional fixed-income investment. However, if the index performs poorly, the MLD may provide a