Market linked debentures vs NCD: the differences

Market linked debentures vs NCD is a comparison between two instruments that share a rulebook and almost nothing else about how their returns behave. Both are non-convertible debt securities issued under the same SEBI regulations. One pays a coupon you can read off the term sheet. The other pays whatever a formula produces. This guide compares them across eligibility, rating, disclosure, valuation and how they are sold. It is not investment advice.

What is the core difference between market linked debentures and an NCD?

The coupon. A plain NCD carries a rate set in the terms of the issue, whether fixed or benchmarked, and the cash flow schedule is knowable at allotment. In fact the issuer files that schedule: field 57 of Annexure XIV-A requires the cash flow schedule for interest, dividend or redemption to go into the centralised corporate bond database at ISIN activation, with changes updated within one working day.

A market linked debenture cannot be pinned down that way, because the payoff depends on where a benchmark lands. Chapter X of the Master Circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper, dated 15 October 2025, opens by saying exactly this: such securities are different in their nature and their risk and return relationship, so additional disclosures and requirements are specified.

What both share is the principal promise. Chapter X paragraph 2.1 is blunt about it: debt securities that do not promise to return the principal in full at the end of the tenor, meaning principal non-protected, are not debt securities under Regulation 2(k) of the NCS Regulations and cannot be issued and listed under them at all.

Side by side

Why the Rs 100 crore net worth bar applies to only one of them

Because the market risk does not sit with the investor.

An issuer that promises full principal while owing a derivative-linked payoff has taken the market exposure onto its own balance sheet. Paragraph 2.2 states the logic and sets the filter. A plain NCD issuer carries credit risk and interest rate risk in the ordinary way, so no instrument-specific net worth threshold applies to it.

Why is the rating prefixed, and what does the prefix not tell you?

Chapter X paragraph 2.3(a) requires the credit rating from any registered rating agency to bear the prefix PP-MLD, denoting Principal Protected Market Linked Debt securities, ahead of the standard rating symbols.

The prefix exists to stop a reader treating the rating as answering the same question it answers on a plain NCD. Paragraph 2.3(d) makes the limit explicit by requiring a prominent risk factor stating that in principal or capital protected market linked debt securities, the principal is still subject to the issuer's credit risk, and the investor may or may not recover all or part of the funds on default.

Protected means protected against the market variable. It does not mean protected against the issuer. That distinction is what the credit rating speaks to, and the prefix signals that a second risk, model risk, sits alongside it. Paragraph 2.3(c) requires a prominent risk factor on model risk: the securities are built on complex mathematical models involving multiple derivative exposures that may or may not be hedged, and hedges may behave very differently from what the models predict.

What extra disclosure does the market linked version carry?

Six items beyond the two risk factors, under paragraph 2.3. A scenario analysis or valuation matrix showing value under rising, stable and falling market conditions, as a table with a graphic. Indicative returns quoted on an annualised basis only. A statement that latest and historical valuations sit on the issuer's and the valuer's websites. All distributor commissions by whatever name called. Conditions for premature redemption, if any. And the PP-MLD prefixed rating.

The commission disclosure has no counterpart in a plain NCD offer document, and it is unusual for debt generally. What the seller earns is a disclosed number.

How does the valuation entitlement differ in practice?

This is the sharpest practical gap between the two.

A plain NCD holder often has no independent mark between coupon dates. A market linked debenture holder has a mandated one. Paragraph 2.4 requires the issuer to appoint a third party valuation agency, which must be an AMFI appointed valuation agency. That valuer publishes the value on its website and gives it to the issuer at least once a week, the issuer hosts it, it is publicly available, and the issuer must supply it on investor request. The investor cannot be charged at any point, and the cost the issuer bears is disclosed in the offer document.

How does selling differ?

Paragraph 2.5 puts duties on the intermediary rather than the issuer when market linked debentures reach retail investors. The intermediary must be a SEBI regulated entity, must explain the risks, must satisfy itself the investor can take the risk and that the security suits their risk profile, must provide the offer document, must point to where valuations can be obtained, and must give guidance on exit loads, exit options and any liquidity support.

That last duty is where the two instruments can converge again. Either can carry an issuer put option, and where an issuer chooses to attach the standardised version, a liquidity window facility is the framework for selling back on published dates.

The short version: same regulations, same principal promise, materially different return mechanics, and a disclosure and valuation regime on the market linked side that exists because the payoff cannot be read off a term sheet. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.