MUMBAI: Individual investors looking to make profits in stocks at these levels but are keen to maintain exposure to the market can consider Incred Money’s Nifty Accelerator Market Linked Debenture (MLD) – a hybrid instrument that combines debt and equity. Bets on a mix of. This is the first MLD to have a ticket size of ₹1 lakh, whereas earlier it was ₹10 lakh. Investors can earn up to 14.05% from this instrument with a tenure of 26 months.
MLD – a popular structured product among wealthy investors until the government changes its taxation in 2023 – is structured to protect capital with nifty exposure generating higher returns than traditional fixed-income instruments. Issued by non-banking finance companies (NBFCs), it is used by them to raise funds from the market.
How is it structured?
Out of every ₹100 invested, ₹80 will be invested in the bonds of the issuer (InCred Financial in this case). This will protect the capital. The remaining ₹20 will be invested in Nifty call options – an equity derivative that bets on Nifty rising in value. If Nifty 50 moves as expected, the derivative exposure could increase to ₹33 in the next 26 months. If this does not happen then the value may become zero during this period. At the end of the tenure, an investor will get between ₹100 (capital) to ₹133 (₹100 + ₹33(profit)), which translates to an annual return of up to 14.05%. This product will work for an investor who is unsure about the stock market prospects after the 24% rise in Nifty last year.
“The ticket size, which was earlier ₹10 lakh, has been reduced to ₹1 lakh, which will attract a whole bunch of new investors,” says Vijay Kuppa, CEO, of Incred Money. Kuppa said it is a good diversifier for retail investors who are looking for exposure to the equity market with a layer of protection.
The structure works in such a way that if Nifty falls below 22,000, investors will get back only their principal or ₹100. The index closed at 22,040.70 on Friday.
If Nifty remains between 23,000 and 27,500, investors will get ₹109-133. If Nifty hits 27,500 and above, which is 25% from current levels, the investor will get ₹133.
not for all
Financial planners say, however, that investors should avoid overdoing it while investing in such products. The creditworthiness of the NBFC issuing the MLD is important while deciding whether to invest or not.
Moreover, MLD – primarily a loan-oriented product – is taxed like any other loan product. They lost their popularity among wealthy investors after the government imposed higher taxes on these structured products in the Union Budget 2023, resulting in them losing their profits over other debt instruments. Short-term capital gains tax on debt instruments is 30% for individuals in the highest tax bracket. “Due to changes in taxation, the product has lost its relevance for wealthy investors and family offices,” said Nirav Karkera, head of research at Fisdom.