The Comprehensive Guide to

Passive Income Investing


Learn the secrets of how Paul Tracy generates over $XXX,XXX per month in passive income!

How to Become Financially Independent Through Passive Income Investing

What are Market Index Target-Term Security (MITTS)?

A market index target-term security (MITTS) is a debt security that offers potential upside based on gains in a market index while limiting downside losses by guaranteeing the initial investment will be returned if the index declines.

How Do Market Index Target-Term Security (MITTS) Work?

First conceived by Merrill Lynch, a MITTS is a debt obligation that exposes an investor to upside fluctuations in a stock market index such as the Dow Jones Industrial Average (DJIA) or S&P 500 Index.

A MITTS has a lifespan of one year from the date of issue and has the potential to earn returns corresponding to the increase in its assigned index. If the index increases, investors receive the initial amount they invested plus an amount of money corresponding to the percentage gained by the index. If the assigned index declines, investors receive no less than their original investment.

For example, suppose Bob purchases one unit of a MITTS based on the Dow Jones Industrial Average for $100. At maturity, the Dow Jones has risen by 15%. Consequently, Bob receives $115, which includes his initial $100 investment combined with $15 (representing the proportional 15% index gain. Had the Dow Jones lost value or remained unchanged, Bob would still be guaranteed the $100 he initially invested in the MITTS.

Why Do Market Index Target-Term Security (MITTS) Matter?

Despite the loss constraints and reasonable lifespan to maturity, MITTS have several disadvantages investors must be aware of. First, MITTS are taxed regardless of whether the underlying index experiences gains or losses. Second, holders are strictly prohibited from selling MITTS prior to the maturity date.

Ask an Expert about Market Index Target-Term Security (MITTS)

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Market Index Target-Term Security (MITTS).

Be the first to ask a question

If you have a question about Market Index Target-Term Security (MITTS), then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.