What are Equity related securities?
Equity related securities (ERS) refer to those securities, which offers ownership in line with that of equity of various organizations. It actually denotes a debt instrument which is related to the equity market. So, in layman language, it is a hybrid instrument. Or, we may say that it looks like a debt instrument but behaves like an equity one.
Good Investment option for those with Medium Risk appetite
Equity related securities are a good option for people with medium risk appetite and wants to have a bit of both worlds. But it must be noted that though one is assured of the benefits of both the worlds, the risk associated with both, though reduced a bit, is not eliminated.
They were introduced in 1990 and were mostly offered in the form of mutual funds, Certificate of Deposits, annuities, etc. They generally come with a restriction on the maximum one can earn from that instrument. While in some, the amount is capped, in others there is a percentage cap.
How are they different from Convertible Bonds?
- The return from ERS is limited
- ERS does not provide any capital protection
- Though there is a cap, the returns linked with ERS are generally higher than the underlying stock.
- ERS are more liquid