Equity Linked Debentures (ELD) – Basics
UTI Asset Management Company Ltd
Equity Linked Debentures

With the high volatility in the equity markets, investors
are increasingly looking at financial products which
provide stability along with decent returns.

‘Equity-Linked Debentures’ (or ELDs) are products
that provide:
1) Capital protection,
2) A slice of the stock market based returns
What are ELD’s
 An ELD is a form of a fixed income product.
 It differs from standard fixed-income product as the
final payout is also based on the return of the
underlying equity, which can be a set of stocks,
basket of stocks or an equity index (all pre-defined)
 It is structured so as to give 100% capital protection
with a provision for equity participation.
 Bonds are rated by an accredited rating agency.
Simply put… ‘Equity Linked Debentures’
are popularly known as capital protection
funds & give you the upside of equities
and protect the downside!
Risk Return Reward
As per the risk return chart above, ELDs offer better returns
than FMP at a lower risk than equities.
Typical Payoff Scenario
In a typical payoff scenario, as illustrated above, ELDs, on an
average, offer better returns than FMPs and even when the Nifty
goes down, you recover your principal amount.
Who Can Apply
Broad theme of ELD’s
 These bonds are linked to an index like the Nifty or
any/group of equity shares.
 The issuer of bonds may invests a pre-determined part
of the principal amount collected in fixed income
securities like bonds, which provide principal
protection.
 The balance maybe invested in call options which
provide the exposure to equity or stock index.
Who Can Apply
Illustration
 The returns are calculated in this manner:
 Say, the fund house comes to an initial value of the
Nifty, which is often the average of the first three
months.
 Also suppose, the Nifty’s value has been 3,800, 4,000
and 4,200 at the end of months 1, 2 & 3:
 Their average is worked out to be (3800+ 4000 +
4200)/3 = 4,000.
Contd …
 The final value is also calculated as the average of
the last three months.
 Now, if the Nifty’s value closes at 5,000, 5,200,
5,500 in months 13, 14 and 15 respectively, we can
calculate the average to 5,233.
 So, the final Nifty returns come out to (5233 4,000)/4,000*100 = 30.82 per cent over the threeyear period.
 The Nifty return, multiplied by the participation ratio
(that is pre-decided by the fund) is the final return.
Participation Ratio
 Participation Ratio is the ratio at which ELD
participates in the appreciation of the underlying equity
index (say the Nifty).
 E.g. Participation Ratio of 100% implies that a 10%
increase in the Nifty will result in a final equity-linked
coupon of 10%.
In a nut shell
Principal
Remains
Intact
+
Equity
Market
Participation
=
Equity
Linked
Debentures
(ELD)
Remember…
 Equity linked debenture schemes do not allow premature
exits.
 All benefits are subject to investment being held till
redemption date.
 These products, though listed on the exchanges, are a bit
illiquid and hence difficult to sell or transfer.
 In certain cases, the issuer or arranger of the notes may
offer to buy back the notes at a certain cut-off.
To Sum up
If investors model and balance their portfolio in a
disciplined manner and then hold it long term, they
will derive the same benefits as that of an equity
linked plan.
By investing in these schemes, on the upside, they
may get a return related to the appreciation of the
Nifty.
At worse, they won't lose their capital.
PMS: Risk Factors
Risk Factors : Portfolio investments are subject to market and other risks and consequently, the Portfolio Manager makes no guarantee or
assurance that the objectives set out in the agreement or otherwise shall be accomplished. The value of the portfolio may increase or
decrease depending upon market conditions and factors affecting capital markets such as de-listing of securities, market closure, insufficient volumes and Macroeconomic factors like economic slowdown, unanticipated corporate performance, environmental or political
problems, changes to monetary or fiscal policies, changes in government policies and regulations with regard to industry and exports.
Consequently, the Portfolio Manager makes no assurance of any returns on the Portfolio. Past performance of the Portfolio Manager does
not guarantee the future performance of the same and investors are not offered any guarantee or assurance on portfolio returns. Equity
instruments carry both company specific and market risks. Debt securities are subject to credit risk, interest rate risk, default risk etc.
Accordingly the value of investments may appreciate or depreciate, hence no assurance of returns can be made for these investments and
any loss arising from decisions taken by the portfolio manager shall be assumed by the Client. Derivative products are affected by various
risks including but not limited to counter-party risk, market risk, valuation risk, liquidity risk and basis risk. An exposure to derivatives in
excess of the hedging requirements can lead to losses. An exposure to derivatives can also limit the profits from a genuine investment
transaction. Efficiency of a derivatives market depends on the development of a liquid and efficient market for underlying securities and
also on the suitable and acceptable benchmarks. The portfolio manager is not responsible or liable for any loss resulting from the
operations of the portfolio. Further the portfolios are subjected to reinvestment risk arising due to uncertainty in the rate at which cash
flows from an investment may be reinvested and Non Diversification risk which arises when the portfolio is not sufficiently diversified by
investing in a wide variety of instruments. Liquidity risk arises when investments are often restricted by factors such as trading volumes,
settlement periods and transfer procedures. Further the Client may suffer a loss on account of Settlement risk in transferring securities
and non availability of price information from the stock exchanges. Risk factors inherent to equities and debt securities are also applicable
to investments in mutual fund units, which in addition could be affected by events like change in the fund manager, take over and mergers
of mutual funds, foreclosure of schemes or plans etc.
Disclaimer This document is issued by UTI Asset Management Company Ltd. and is only for general information purpose. This document
does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or subscribe to any services. It does
not serve as or replace or amend the terms or nature of any products or services offered by the company. The recipient of this material
alone shall be fully responsible / liable for any decision taken on the basis of this material. All recipients are advised to make their own
investigation, their own independent judgement with respect to any matter contained herein. Services discussed herein may not be suitable
for all investors and appropriate professional advise should be obtained before acting on any information herein.
Additional Risk Factors Non Convertible Debentures
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The above details of NCDs are as intimated by the issuer and are only indicative. The issuer may issue NCDs with
modifications to the above mentioned details and the Portfolio Manager reserves the right to either accept or reject it.
However Portfolio Manager may at it’s discretion decide not to apply to these NCDs and return the funds to various
investors, in case :
a. There is any change in key Terms
b. In the opinion of the Portfolio Manager the total Application amount received under this series does not justify
investment in these NCDs, etc.
c. The issuer decides not to issue / allot the NCDs due to such reasons as it deems fit, in which case , no issue /
allotment of NCDs will be made.
If the issuer chooses to revise the issue opening date/issue closing date/ date of allotment of the NCDs, the Portfolio
manager retains the right to subscribe to the NCDs as per the new dates determined by the issuer.
There is a possibility of the Reference Index getting dissolved or withdrawn by the Index Provider and in such case the
Debenture – Trustees, upon request by the issuer of the NCD. may modify the terms of issue of NCDs, so as to track a
different and suitable index with intimation to the NCD holders accordingly.
Investment by the Portfolio Managers in instruments like Index Linked Non Convertible Debentures (NCDs) involves a
certain level of risk. The value of the NCDs may be impacted by movements in the returns generated by the underlying
index.
The return on investment in securities is contingent and based on happening / non happening of specified events and
any variance /deviance/non fulfillment in/of such events may adversely impact upon the same.
The Investments in NCDs are subject to credit risk of the issuer of the NCDs either due to default or their inability to
make timely payments of principal and interest. The portfolio valuation may also be affected accordingly and in case the
issuer of the NCD defaults, the Investor may fail to receive the Principal Amount .
In case there is a credit default by the issuer, there is a risk of receiving lower than expected or negligible returns or
returns lower than the initial investment amount in respect of such Index Linked Debentures over the life and/ or part
thereof or upon maturity of the NCDs.
Investment in NCDs may also result in a loss meaning that the Portfolio Manager as a holder of the NCDs may lose some
or all of its investments especially where changes in the value of transactions may be accentuated by leverage. Even
where the NCDs are principal protected there is a risk that any failure by a counter-party to perform obligations when
due may result in the loss of all or part of the investor’s investment.
UTI Asset Management Company Ltd and /or any of it’s officers, directors, personnel and employees, shall not be liable in
any manner whatsoever for any loss, damage of any nature , including but not limited to direct ,indirect ,punitive ,special
,exemplary, consequential, and/or loss of profit of goodwill, whether arising out of or in connection with the use of the
product and/or this material. In all circumstances, it is the investor alone who shall be fully responsible /are liable for any
decision in connection with the product whether based on this material or in any other manner whatsoever.
The commencement date of the issue and the offer period may be altered at the sole discretion of the Portfolio Manager.
In the preparation of the material contained in this document, UTI Asset Management Company Ltd. has used
information that is publicly available, including information developed in-house. Some of the material used in the
document may have been obtained from members / persons other than from the UTI Asset Management Company Ltd
and/or it’s affiliates and which may have been made available to the UTI Asset Management Company Ltd and/ or it’s
affiliates. Information gathered and material used in this document is believed to be from reliable sources. The UTI Asset
Management Company Ltd however does not warrant the accuracy, reasonableness and / or completeness of any
information. We have included statements / opinions / recommendations in this document, which contain words or
phrases such as “ will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “
forward looking statements” . Actual results may differ materially from those suggested by the forward looking
statements due to risk or uncertainties associated with our expectations with respect to , but not limited to, exposure to
markets risks, general economic and political conditions in India and other countries globally, which have an impact on
our services and / or investments, the monetary and interest policies of India, Inflation deflation unanticipated turbulence
in interest rates, foreign exchange rates, equity prices or other rates or prices etc..
Thank you
In case of any query, please e-mail
mandar.kadam@uti.co.in
Contact No. 9892900923