Equity-Linked Security - ELKS

Filed Under: , ,
Dictionary Says

Definition of 'Equity-Linked Security - ELKS'


A hybrid debt instrument that is linked to the equity markets. Equity-linked securities can be in the form of a single stock, a group of stocks or an equity-based index, such as the S&P 500.

The return on investment is dependent upon the performance of the underlying equities that are linked to the security. This type of security will often offer a guarantee of principal plus perhaps a small gain in return for a reduced payout of equity gains.

Investopedia Says

Investopedia explains 'Equity-Linked Security - ELKS'


Equity-linked securities first appeared in the 1990s and have been offered in the form of annuities, mutual funds and CDs. Most equity-linked securities will limit the equity gains that their investors can realize, either in the form of a reduced percentage of gains (such as 70% of all gains with no limit), or an absolute cap (meaning that the investor gets 100% of the gain up to a certain amount each year in total return, such as 10%).

For example, an investor with a 70% cap will see $7,000 of gain from a $100,000 investment if the underlying equities post a 10% gain for the year. However, the same investor with the same investment amount in a security with a 10% cap will only see the first $10,000 of gain in a year even if the underlying equities rise by 50%.

comments powered by Disqus
Hot Definitions
  1. Private Equity

    Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
  2. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  3. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  4. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  5. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  6. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
Trading Center