Equity linked investment refers to financial products that link returns to the performance of underlying equities or equity indices. It allows investors to gain equity exposure without directly purchasing equities. This article explains key features and application scenarios of popular equity linked investment products such as equity warrants, convertible bonds, and equity structured products.
Features of equity warrants providing conditional equity exposure
Equity warrants provide holders the right but not the obligation to purchase underlying equities at a preset price within a certain period. Investors gain leveraged equity exposure conditionally without needing to outlay full capital upfront. Warrants appeal to investors with positive outlooks on certain stocks expecting large price appreciation potential.
Convertible bonds allowing flexible participation in equity upside
Convertible bonds contain embedded call options allowing bondholders to convert their bond holdings into company equities. This equity conversion right allows investors to participate in stock price appreciation while enjoying downside protection of fixed income. Convertibles suit investors seeking moderate equity exposure without full stock investment risks.
Structured products for customized equity investment exposure
Equity structured products offer customized exposure to various combinations of equities, indices or investment strategies. They allow specific investor objectives like enhanced yields, principal protections or defined returns over holding periods. But the customized nature, complexity and credit risks require thorough examination before investing.
Equity linked investments through warrants, convertibles and structured products allow indirect equity market participation under different risk-return profiles. They suit investors with outlooks tied to certain stocks or indices but limited capital or risk tolerance for direct stock purchases.