Structured Products: Equity Market Linked Debentures

Equity Market Linked Debentures (a form of structured products), provide investors an ability to participate in the equity markets with differentated return payoffs. This includes products that provide the same returns on the upside with no downside risk, or products that provide upside returns that are a multiple of what the market returns. 

How do Structured Products work?

Most structured products are structured as a Market-Linked Debenture, that is issued by an NBFC. This is essentially a form of borrowing for NBFC’s that issue these market-linked debentures. 

When an NBFC borrows against a normal bond, the NBFC pays the investor back a fixed coupon (or interest) and the return of capital at maturity. In the case of an equity market-linked debenture, the returns to the investor vary based on market-returns & the manner in which the product has been structured. 

At the back-end the NBFC essentially uses a combination of futures & options, to create the return pay-off that is differs from that of traditional investment options.