What is a Structured Product?

A Structured Product is a bespoke investment vehicle built with varying terms, payout and risk profile based on a range of underlying assets. Many firms will make individual bespoke Structured Products for high net worth investors, to suit their risk profile, although there are also general products that will suit a wide variety of middle ground investors. A big advantage of structured products is that they enable the investor to invest in atypical (unusual) assets such as interest rates, commodities and Foreign Exchange transactions that might not be accessible to less wealthy investor.

Structured Products are made up from a combination of four different sections.

Capital Protection

This part of a structured product is generally in the form of a zero coupon bond and is the part that fixes the losses. The amount of capital protection depends on the risk of the product.

Yield Enhancement

The part of the investment that will fluctuate with market conditions. These can vary from being very high risk to low risk conditions and possible gains and losses are reflected by this.

Trackers

Trackers are a way of following an underlying asset providing a cost effective way to trade it. Trackers allow for a large amount of diversity without the need for large sums of money to be invested by an individual and are generally long dated and stamp duty free.

Reverse Trackers

The polar opposite of a tracker. This will make money when the asset moves downwards in value.

Top Tips:

  1. Assess the best and worst case scenarios for each structured product and choose the one that best suits your risk portfolio.
  2. Fees are normally included in these scenarios but do double check this.
  3. Most products will have to be held to maturity for capital protection to apply so these are not short term investments.
  4. Be aware of any tax implications that may apply to certain products.
  5. As these are fixed term investments, check the costs of early withdrawal.
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