Medium Risk / Medium Return - A Representative Product: ELS

Today, let's learn about ELS (Equity-Linked Securities), a representative medium-risk, medium-return financial product.
ELS (Equity-Linked Securities) is an investment product that is safer than investing directly in the stock market while offering the prospect of higher returns than regular deposits.
Similar to equity funds, it seeks higher returns than regular deposits through indirect investment in stocks.
In addition, a big advantage is that it can be designed as a principal-protected product for greater safety, and you can choose from a variety of return structures and maturities to match your investment profile.
So let's briefly look at what kind of product ELS (Equity-Linked Securities) is.
ELS (Equity-Linked Securities) is a financial product linked to stocks or stock indices.
You can think of it as a product whose returns are determined by the movement of stocks or stock indices.
Let's take an example. A student named Hong Gil-dong makes a deal with his parents: if, at any point over 3 years, his English and math test scores are both 80 or higher, they will buy him a game console.
However, they set the condition that if even one subject falls below 50 during this period, he won't get his allowance.
If he scores 80 in English and 80 in math in the first semester, both subjects are 80 or higher, so the condition is met.
Then they buy him the game console and the deal ends.
If the condition is not met, it carries over to the next test.
If he scores 80 in English and 90 in math on the next test, the condition is met, so they buy him the game console and the deal ends.
In this way, the scores are checked at every test, and if the condition is met, the promised game console is bought and the deal ends.
If not, it moves on to the next opportunity, and the scores are checked up to the last test to decide whether or not to buy the promised game console.
However, if the condition is not met by the last test, Hong Gil-dong does not get the game console.
Worse, if even one subject has fallen below 50, Hong Gil-dong gets neither the game console nor his allowance.
ELS is a financial product built on this principle.
The English and math scores are the underlying assets, and the score of 80 is the early redemption condition.
The early redemption condition refers to the condition under which the product ends before the maturity date, paying out the principal plus the target interest.

Now let's take a real ELS product as the most typical example.
The product below can be redeemed early every 6 months.
In the product structure, the first number, 87, is the condition for the 1st early redemption.
Taking the KOSPI 200 index on the issue date as 100, the condition is met as long as the index does not fall below 87%.
Then you earn a return at 14% per year and the product ends with early redemption.
- Underlying asset : KOSPI 200 index
- Issue date : 2025.01.20
- Maturity date : 2028.1.20
- Product structure : Early redemption type (87-87-85-85-80-75), 55KI
- Maturity / redemption cycle : 3 years / 6 months
- If conditions are met, 14% per year, - If conditions are not met* : -100%

If the early redemption condition is not met in the product above, it moves on to the next round 6 months later.
The second condition is also 87, so it is handled the same way as the first condition.
If early redemption doesn't happen in this way, the product goes to maturity.
At maturity, the condition is the last number, 75, so if the KOSPI 200 index does not fall below 75%, you receive the 14% annual return and the product is settled at maturity.
However, if it has fallen below 75%, you do not receive a return and only the principal is repaid.
The problem is the 55KI part, and here KI is short for Knock-In. If the condition is not met at maturity and the index has fallen to 55% or below even once, you're in trouble.
In that case, a loss occurs depending on the size of the decline.
Besides this structure, there are ELS products with a variety of other structures.
An ELS product delivers good returns when certain conditions are met.
ELS is a good medium-risk, medium-return product. It is not a risk-free financial product.
As we always emphasize, going all-in on a single product with your assets is not good investing.
In 2024, there was a case of large-scale losses in ELS derivative products using the Hong Kong index as the underlying asset.
It became an issue as banks and securities firms even prepared plans to compensate for these losses.
At the time of issuance, no one expected the Hong Kong index to fall by more than 50%.
However, it was a problem with the Hong Kong stock market due to political issues after Hong Kong's return to China.
As such, even with indirect investment products, only continued attention to and learning about financial markets can protect your assets. \
Next, there is a product called DLS, similar to ELS.
Let's learn about DLS.
DLS (Derivative Linked Securities) are derivative-linked securities tied to price movements of underlying assets other than stock prices, such as interest rates, commodities and exchange rates.
While ELS is linked to stock prices, DLS is a product that lets you invest linked to a variety of underlying assets.
It generally has higher volatility and risk than ELS.