An Equity-Linked Note (ELN) is a debt security that is linked to the performance of an underlying equity or equity index. ELNs are usually marketed as a way to leverage the returns of the stock market with limited downside risk. They typically offer investors a higher return than the equivalent bond, but with a much lower investment amount.

Equity-Linked Notes are issued by banks, brokerages, and other financial institutions. ELNs are generally unsecured investments and are often issued as preferred stock with a predetermined maturity date. The equity portion of the ELN follows the performance of an underlying equity index or individual stock. The underlying asset can either be an equity index or a single stock, allowing investors to take on more risk or diversify their holdings.

For instance, an ELN might offer investors a coupon payment that increases as the underlying equity rises in value. Conversely, the coupon will decrease if the underlying asset falls in value. The coupon payments may be linked to the total return of the equity index or the dividend yield of the single stock. Additionally, investors may receive a "principal protection" benefit if the underlying stock loses value. This means that a portion of the principal investment is guaranteed to be returned, even if the stock’s price falls below its initial purchase price.

ELNs may also include put and call options, allowing investors to hold their ELN for a predetermined period of time before cashing out for a predetermined price. These options are effective hedging strategies for investors who wish to reduce risk.

Overall, Equity-Linked Notes offer investors a unique way to leverage the potential of the stock market. By covering their downside risk through principal protection, ELNs provide investors with set returns that have the potential to outperform their equivalent bond investments.