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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 sell 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.