The Basics of an Equity Linked Note

An equity linked note is a type of investment that shares some of the characteristics of a debt instrument and of an equity instrument. This is essentially like a bond linked to some type of equity, such as a stock.

With this type of instrument, you will basically be purchasing a bond. The bond will be tied to the performance of a particular stock or a basket of stocks. If the stocks increase in value, the investor will be able to receive her original investment as well as a certain percentage of the growth of the stock.

If the stock does not perform well, the individual will generally receive only her original investment back. This provides her with some safety in her investment, while providing her with some exposure to the stock market as well. This type of investment can give an investor the best of both worlds. She gets the guarantee on the principal of the investment that comes with investing in a bond, but she can actually benefit from capital appreciation in the stock market as if she were investing directly into corporate stocks. This type of investment is designed to be kept until maturity. 

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