Because of the large range and scope of structured products in the market, there is no all-encompassing definition of a structured product. However, structured products are generally pre-packaged investments that are linked to a particular asset, market or index. They are usually issued by investment banks or associated companies and have two components: a note and a derivative. The note provides for periodic interest payments over a fixed maturity, to the investor at a predetermined rate, and the derivative component provides for the payment at maturity, depending upon the performance of the particular market that they are tracking.
The various types of structured products provide differing levels of capital protection and in some cases structured products can deliver greater returns than investing in the underlying assets themselves.
It is important to note that structured products are not an asset class in themselves; they are merely a way of gaining exposure to asset classes such as indices, stocks, bonds and property.
The benefits of investing in structured products:
- Investments are quoted net of initial and ongoing fees and charges as these are built into the product, in other words, 100% of investors’ capital gets invested
- A range of Plans to choose from offering various levels of risk and return and exposure to a variety of markets
- Investments are available through various wraps and platforms in the UK and investments can be made directly or via ISAs, SIPP, SSAS and companies
Risks of investing in structured products:
- The counterparty could collapse or fail to make the payments due from the investments. If this happened investors would lose some or all of their original investment as well as any returns
- The investment return depends on the performance of the underlying securities which can go down as well as up
- Should the underlying investment grow by more than the returns offered through the structured product, investors would not benefit from that additional growth
