Market Index Target-Term Security - MITTS

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.