Structured investment products are pre-packaged investment strategies based on various underlying assets such as equities, interest rates, currencies, commodities etc. The value of the product can thus depend on the value of the underlying stocks or indices. The idea is to generate a particular payoff on the product to suit particular market views and maximize the returns thereof. Some structured products offer a ‘principal protection’ function if held to maturity.
The aim of a structured product is to protect the principal and at the same time give returns linked to stocks. Does this mean all your money is invested in the stock market? The answer is no, as there is no fixed criterion. The issuer can use the money for own business or trading complex derivative products as well.
However, there are structured products that do not offer capital protection features.
- Customised exposure to the underlying asset of your choice.
- Access to a wide range of assets.
- Tailored products to suit your needs.
- Hedging to help insure against adverse movements.
- Access to a wide range of counterparties offering you value.
Liquidity risk: Structured products are listed on exchanges but not actively traded.
Issuer risk: If the issuer defaults, you may end up losing the capital.
Notional interest: If you get back just your principal, you have suffered a notional loss of interest, as this money could have been used to earn from other avenues such as debt instruments.
Structured products bring benefits of derivative investing to investors who do not have either access to these products or knowledge about them.