What is Nifty-linked Structured Products (NLDs)

Nifty-Linked Structured Products (NLDs) ..

 As Nifty crosses the 8000-mark, Nifty-linked debentures (NLDs) worth ` Rs. 300 crore are Rs.200 crore to  being lapped by high net worth individuals (HNIs) every month.

At present, NLDs of ` Rs.10,000 crore are being held by such investors who are serviced by private wealth arms of banks & brokerages.

NLDs come in 2 flavours..!

With capital protection (where the invested corpus is not eroded) and the riskier one with no capital protection (that captures higher return when the market surges but can wipe out the capital if there is a crash).

Mr. Ashish Kehair, Head (Private Wealth), ICICI Securities. “Investors who want exposure to equities. But, avoid the downside risk opt for structures that offer capital protection. Investors looking for high participation in Nifty , invest in structures with no capital protection. Fixed income investors, too, can invest in structures with appropriate pay-offs“

With a minimum investment ticket size of Rs. 10 lakh, the space primarily belongs to rich investors who snoop around for fancy products beyond the plain vanilla. Those looking for capital protection, typically put money in three-year NLDs that offer 1.4 times the point to point return generated by NIFTY at the end of the tenure.

So, if the index rises 70 per cent in 3 years, an investor walks away with an interest of Rs. 9.8 lakh (1.4 times of 70 %) besides getting back the capital of Rs.10 lakh. This is the maximum she receives even if the NIFTY rises beyond 70 per cent. If at the end of three years, the NIFTY is below the level it was when the product was sold, the investor only gets back the capital.

 

They also remind clients of the tax angle in NLDs. Capital guarantee products are listed on the exchange and, therefore, attract 10% tax if they are sold after 12 months, but before maturity of the structure. However, if investors hold NLDs till maturity , the gains are taxed as interest income.

Src; ET

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