Market Index Target-Term Security - MITTS
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Definition of 'Market Index Target-Term Security - MITTS'
A type of principal-protected note initially engineered by Merrill Lynch that is designed to limit the amount of downside risk an investor is exposed to while also providing a return that is proportional to that of a specified stock market index. Market Index Target-Term Securities (MITTS) typically do not afford their owner the right to redeem the security before maturity, nor do they usually afford the right to call the issue in early.
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Investopedia explains 'Market Index Target-Term Security - MITTS'
The purpose of this type of security is to provide equity exposure to an investor's portfolio while still providing a guarantee to the investor that, even if the stock market performs poorly during their investment horizon, they will still be left with a specified minimum amount of capital.
For example, assume an investor could purchase MITTS units today at a price of $10 per unit. The MITTS mature in exactly one year, at which time they require the return of the $10 principal value to investors, plus a proportional return based on the performance of the S&P 500 during that time period. So, if the S&P 500 crashes during the year, the investor still receives their $10 per unit back. However, if the S&P 500 does well during the year, the investor will receive their $10 per unit back, plus an extra amount per unit that is calculated based on the S&P 500's return during the year.
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