MITTS are a kind of hybrid investment, bringing together some aspects of both debt securities and equities. Like debt securities (things like bonds and notes), they pay off no matter what the market does (as long as you hold them to maturity). But, like equities, MITTS still show a return when the stock market is doing well.
The MITTS were first devised by Wall Street investment firm Merrill Lynch, who wanted to create a way for investors to limit downside risk during stretches where the overall market was down.
The MITTS trade like stocks, and their payouts are tied to particular stock indexes. If the index tied to your particular MITT goes up, you get a return based on the amount it rose. If it goes down, you don't get a return, but you do get your principal back. No gains, but no losses either.
However, the investor doesn't receive their return until the MITTS reach maturity. Also, the gains are only proportional to the underlying index...not the full amount. If the S&P 500 rises 10%, the MITTS tied to it don't necessarily pay off the full 10% gain. The investor only gets a portion of that return.
Related or Semi-related Video
Finance: What is the S&P 500?45 Views
finance a la shmoop. what is the S&P 500? well the S&P 500 is just an index- that
is the standard and poors company assembled 500 stocks put them on a
spreadsheet- this was a spreadsheet in 1957 -and they tracked them. [spreadsheet pictured]
well the index had something like 37 shares of Procter & Gamble, the 23 shares
of Ford, 18 shares of IBM and so on. in the 1950s the S&P 500 totaled something
like 40 maybe 50 bucks on a good day. at the end of each day the elves who worked
inside of the S&P Factory, they would add up the shares basically ignore any
dividends and send to the press a total which was published to more or less
everyone who cared about investing. well not nearly even a century later the 40 [man reads newspaper]
to $50 reign to the SNP is today knock on the door of 2,500 .so without even
having dividends reinvested you'd have made 50 times your money with dividends
reinvested to buy more shares instead of keeping the cash to buy you know
groceries or electric massage slippers. you'd have made over 70 times your [grocery display case and slippers pictured]
original investment. welcome to America.
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