PR Sundar, a well-known finfluencer, explains market-linked debentures using a simple example: Imagine a company offers a market-linked debenture. They promise that if you invest Rs 100, you'll get back Rs 114 after two years. This means a 14% return over two years, not annually. When you break it down, this equals less than 6% per year. They also mention that while 14% is the guaranteed minimum return, if the stock market does well, your returns could go up to 20% or even 30%. On the flip side, if the market does poorly, you still get the guaranteed 14% return. This setup protects you from losses while giving you a chance to earn more if the market goes up."
To explain the company's strategy, PR Sundar Finfluencer says, "Think of it like this: You give the company Rs 100. They put Rs 95 into safe investments that usually earn about 8% to 9%. Some banks offer 7% to 7.5% on regular fixed deposits, while certain corporate bonds can give up to 9%. So, by investing Rs 95 in these safe options, it grows to about Rs 114 after two years, which is the minimum amount they promise to return to you."
He adds, "The remaining Rs 5 is used in the stock market to buy call options, specifically NIFTY call options, which are generally long-term. If the stock market does well over the next two years, these options make a profit, giving you extra returns. But even if the stock market doesn’t do well, you still get the minimum Rs 114.