As an investor, how do I diversify between FDs, corporate bonds, market linked debentures? What’s the right mix?

With products like Market-Linked Debentures (MLDs), corporate bonds and high-yield fixed deposits now becoming more accessible to retail investors through platforms, how should an everyday investor think about diversifying across these options? What are the key parameters—such as safety, returns, liquidity, and taxation—that retail investors must weigh while balancing traditional choices like FDs with newer instruments like MLDs and bonds?”

Advice by Vijay Kuppa, Director, Bidd

I see today’s retail fixed-income choices (Small Finance Bank FDs, corporate bonds, and Market-Linked Debentures) as complementary building blocks — each answers a different investor question: preserve, yield, or grow with downside control. Small Finance Bank (SFB) FDs are a conservative core: Many SFBs offering ~8–9% p.a., but remember deposit insurance (DICGC) limits.

Corporate bonds: They give a higher yield compared to FDs, as retail issues can deliver in the ~10–12% (credit quality varies; higher yield = higher credit risk). 

Market-Linked Debenture (MLDs): In uncertain times like the current times, when investment decisions feel tricky, MLDs offer a unique advantage. Think of them as a safety net with upside potential. Like bonds, your principal is 100% protected at maturity, but unlike traditional debt, the returns are tied to an underlying index or asset, say the Nifty or Gold. If markets perform, you share in the upside; if they don’t, you still walk away with your capital intact. 
Liquidity & tenor: FDs and corporate bonds are less liquid (early exit may cost you); MLDs often require holding till maturity to keep capital protection. Match product tenor to your cash needs, and use laddering to smooth reinvestment risk.

Here is how you can do asset allocation: 

>  Conservative: 70% fixed income (SFB FDs 30%, corporate bonds & MLDs 40%), 20% equity, 10% cash
>  Balanced: 50% fixed income (SFB FDs 20%, corporate bond & MLDs 30%), 40% equity, 10% cash.
> Aggressive: 30% fixed income (SFB FDs 10%, corporate bonds & MLDs 20%), 60% equity, 10% cash. 

Investment tips

Prefer high-credit-rated corporate bonds, ladder FDs/bonds, and MLDs for volatile markets. For tailored allocation, time horizon and taxes, consult a qualified advisor.

Market-linked debentures (MLDs) are debt instruments whose returns are tied to the performance of a specific market index or asset, such as the NIFTY 50, Sensex, or government securities. Unlike traditional fixed-income products with fixed interest, MLDs offer the potential for higher returns, depending on how the chosen index performs.

When investors buy an MLD, they are essentially lending money to the issuer. At maturity—typically between 1 to 5 years—they receive the principal along with returns linked to the underlying index. In principal-protected MLDs, the initial investment is returned even if the index performs poorly. In non-principal-protected MLDs, however, investors risk losing part of their capital.

MLDs do not generate periodic income; instead, gains are determined at maturity based on the movement of the underlying index.