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A Structured Product is a combination of two or more financial instruments with a specific maturity date and a defined return objective. It comprises a single structure where the performance is linked to an underlying asset with a derivative element. The underlying piece tends to be a bond or equity or even a commodity with a derivative component such as an option layered on top. For example, a principal protected structured product will have a bond that would take up most of the investment to protect the principal portion. The rest of the investment that is not allocated to the bond will be used to purchase a derivative product which provides upside potential to investors including exposure to a specific asset class.
Asset classes within structured products can include equities, funds, interest rates, currencies, market indices, commodities, individually or as a basket of assets. The performance of the underlying assets will determine the profitability of the structured product, together with the return of the principal invested at maturity.
| Call Option | The option holder (investor) has the right to buy the asset at a certain price on a certain date |
|---|---|
| Put Option | The option holder (investor) has the right to sell the asset at a certain price on a certain date |
The product will usually aim to pay back the capital along with the returns on maturity, these returns will depend on the performance of the underlying asset. Notes with 100% capital protection will typically offer lower returns. An investor can increase returns by decreasing the level of capital protection.
Structured products are complex investments and not suitable for all investors. Here are some of the key risks and considerations you need to be aware of when investing in structured products:
As corporate debt, all terms, including return of principal, is subject to the credit risk of the issuer of the note
Structured notes which have defined coupon payments, or upside potential limited by a step-up return or a maximum gain, may underperform relative to a direct investment in the underlying asset
The characterization of structured notes for tax purposes is not fixed. Investors should consult the tax section of the prospectus for any prospective structured note investment and should consult their own tax advisor as to the specific tax impact of investing in Structured Notes.
Structured products are an alternative to direct financial assets as they can be customized to match various market expectations, risk profiles, investment classes or pay-offs. They are tailored to your specific requirements based on a broad array of underlying assets, including equities, funds, interest rates, currencies, market indices, commodities, both individually or a basket of assets.
However, structured products are not without their risks, including but not limited to: