5 smart things to know about Equity Linked Structured Note

1. An ELN is a debt instrument whose return is determined by the performance of the underlying equity.

2. The underlying equity can be a single equity security, a basket of equity securities, or an equity index.

3.A typical ELN is principal protected so that at maturity the investor is guaranteed to receive the original amount invested.

4.The final payout is the amount invested plus a percentage of the gain in the underlying equity. The percentage is pre-decided and note specific and is called Participation Rate which can be either more than 100% or less.

5. Most ELNs are not actively traded on the secondary market and are designed to be held till maturity.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)