'Equity-Linked Debentures' or ELDs) are products that provide: 1. Capital protection, 2. A slice of the stock market based returns. ELDs are structured so as to give 100% capital protection with a provision for equity participation. Bonds are rated by an accredited rating agency.
'Equity-Linked Debentures' or ELDs) are products that provide: 1. Capital protection, 2. A slice of the stock market based returns. ELDs are structured so as to give 100% capital protection with a provision for equity participation. Bonds are rated by an accredited rating agency.
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'Equity-Linked Debentures' or ELDs) are products that provide: 1. Capital protection, 2. A slice of the stock market based returns. ELDs are structured so as to give 100% capital protection with a provision for equity participation. Bonds are rated by an accredited rating agency.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as PPS, PDF, TXT or read online from Scribd
With the high volatility in the equity markets, investors are increasingly looking at financial products which provide stability along with decent returns. 'Equity-Linked Debentures' or ELDs) are products that provide: 1. Capital protection, 2. A slice of the stock market based returns So what are ELD's? An ELD is a form of a fixed income product. t differs from standard fixed-income product as the final payout is also based on the return of the underlying equity, which can be a set of stocks, basket of stocks or an equity index all pre- defined) t is structured so as to give 100% capital protection with a provision for equity participation. Bonds are rated by an accredited rating agency. $255ut. 'Equity Linked Debentures' are 545uIarIy kn4n as ca5itaI 5r4tecti4n funds & give y4u the u5side 4f equities and 5r4tect the d4nside! As per the risk return chart above, ELDs offer better returns than FMP at a lower risk than equities. %y5icaI Pay4ff Scenari4 n a typical payoff scenario, as illustrated above, ELDs, on an average, offer better returns than FMPs and even when the Nifty goes down, you recover your principal amount. %he actual terms of these products may vary slightly, but the broad theme of ELD works in this manner. %hese bonds are linked to an index like the Nifty or any/group of equity shares. %he issuer of bonds invests a pre-determined part of the principal amount collected in fixed income securities like bonds, which provide principal protection. %he balance is invested in call options which provide the exposure to equity or stock index. For example. %he returns are calculated in this manner: Say, the fund house comes to an initial value of the Nifty, which is often the average of the first three months. Also suppose, the Nifty's value has been 3,800, 4,000 and 4,200 at the end of months 1, 2 & 3: %heir average is worked out to be 3800+ 4000 + 4200/3 = 4,000. %herefore. %he final value is also calculated as the average of the last three months. Now, if the Nifty's value closes at 5,000, 5,200, 5,500 in months 34, 35 and 36 respectively, we can calculate the average to 5,233. So, the final Nifty returns come out to 5,233 - 4,000/4,000*100 = 30.82 per cent over the three- year period. %he Nifty return, muIti5Iied by the 5artici5ati4n rati4 (that is 5re-decided by the fund) is the finaI return. ere's a new term for you to know. Partici5ati4n Rati4 is the ratio at which ELD participates in the appreciation of the underlying equity index say the Nifty). E.g. Participation Ratio of 100% implies that a 10% increase in the Nifty will result in a final equity- linked coupon of 10%. %o finally illustrate. Princi5aI Remains Intact Equity Linked Debentures (ELD) Equity Market Partici5ati4n But remember. Equity linked debenture schemes do not allow premature exits. All benefits are subject to investment being held till redemption date. %hese products, though listed on the exchanges, are a bit illiquid and hence difficult to sell or transfer. n certain cases, the issuer or arranger of the notes may offer to buy back the notes at a certain cut-off. %4 Sum U5 f investors model and balance their portfolio in a disciplined manner and then hold it long term, they will derive the same benefits as that of an equity linked plan. By investing in these schemes, on the upside, they may get a return related to the appreciation of the Nifty. At worse, they won't lose their capital. ope you have now understood the concept of Equity Linked Debentures n case of any query, please e-mail professor@tataamc.com