Introduction: 

Structured products offer investors a unique approach to achieving their financial goals by providing a wide range of investment strategies. These products are designed to cater to various risk profiles and investor outlooks, offering a set of distinctive advantages when compared to traditional investment options like mutual funds or exchange-traded funds (ETFs).

Key Differences to Consider:

  1. Defined Maturity Date: Structured products come with a predefined maturity date, which means investors need to hold their investments until maturity to realize the intended returns and protection.
  2. Liquidity Concerns: Unlike ETFs and mutual funds, structured products often lack a well-established secondary market, making them relatively illiquid.
  3. Principal Protection: Many structured notes offer some form of principal protection, a feature not found in mutual funds.
  4. Targeted Investment: Structured products can be highly customized to match an investor’s specific outlook for a particular underlying asset, considering their risk tolerance.

Structured Products Types:

  1. 100% Principal Protection Structured Products: These are popular among individual investors, offering a minimum return of the original investment at maturity along with a portion of the underlying investment’s gain. They provide security by placing part of the investment in a bond, ensuring that investors receive their principal even if the market performs poorly.
  2. Growth Plans: These offer participation in the upside performance with no cap, appealing to investors with a bullish outlook. Returns are typically based on a percentage of the underlying asset’s growth.
  3. Enhanced Growth Plans: These provide leveraged exposure to the upside performance of the underlying asset and often include a cap on returns. They suit investors expecting positive gains in the underlying.
  4. Defined Return Plans: Known as digitals, these products provide a predefined return in addition to full capital protection if specific conditions are met. They appeal to investors looking for defined returns with capital protection.
  5. Income Plans: These offer fixed income payments at regular intervals over the investment term. The maximum reward is the income stream plus the initial capital, making them attractive to investors with a neutral to moderately positive outlook.
  6. Locked-in Return Plans: These allow investors to lock in a pre-defined amount of growth during the investment term, ensuring a return at maturity, regardless of subsequent market movements.
  7. Kick-out Plans: These mature early if specific price/index targets are met during the investment term, providing predetermined returns. They are suitable for investors with a positive short-to-medium-term view.

Risk-Reward Tradeoff:

Structured products offer varying degrees of capital protection, and investors can increase returns by accepting higher levels of risk. Some products come with partial principal protection, while others offer no principal protection, but they aim to generate returns higher than traditional bonds.

Conclusion:

Structured products provide a versatile set of investment options, each designed to cater to specific investor preferences and market conditions. While they offer unique advantages such as principal protection and tailored investment strategies, investors should carefully consider their risk tolerance and investment goals when choosing structured products. As with any investment, it’s essential to conduct thorough research and, if needed, consult with a financial advisor to make informed investment decisions.