Equity Linked Note (ELN)
What it is:
How it works/Example:
An ELN is a principal-protected instrument generally intended to return 100% of the original investment at maturity, but deviates from a typical fixed-coupon bond in that its coupon is governed by the appreciation of the underlying equity.
An ELN has fixed-income features, like principal protection, as well as equity market upward exposure. It is structured by combining the economics of a long call option on equity with a long discount bond position. The investment structure generally offers 100% principal protection. The final payment at maturity or coupon is determined by the appreciation of the underlying stock.
Why it matters:
The ELN is appropriate for conservative equity investors or fixed-income investors who desire equity exposure with controlled risk.