Structured Product
AdvancedA structured product is a pre-packaged investment that combines a basic investment, such as a bond or deposit, with one or more derivatives, to create a specific pattern of returns linked to an underlying asset, such as a stock index.
Structured products are designed to offer features that investors may find attractive, such as capital protection, enhanced income or returns linked to a market's performance with limited downside.
A common example is a capital-protected note. Of every 100 invested, about 90 might be used to buy a zero-coupon bond that grows back to 100 at maturity, and the remaining 10 used to buy options on a stock index. The investor gets their 100 back at maturity, plus a share of any index gains.
Structured products are sold by banks to retail and private wealth clients in many countries. Variations include products that pay high income unless an index falls below a barrier, and products with returns linked to several assets.
They carry risks that may not be obvious. Many are issued by banks, so if the issuer fails, investors may lose money despite capital protection. They can be complex, hard to sell before maturity and include significant fees built into the price. Regulators require clear disclosure of these risks.
For worked examples and full lessons, visit notesbysara.org.