What are Structured Products?

A structured product is an investment product where the return is defined by reference to a predetermined underlying measurement, such as the FTSE 100 index, and delivered at a defined date, known as the maturity date.

Structured products can very useful investment tools in portfolio management. They can provide exposure to a range of different asset classes (underlyings) whilst at the same time providing a mechanism for managing risk within a portfolio.

Types of Structured Products

Broadly speaking, there are 2 main types of structured products: ‘Capital Protected’ structured products, and ‘Capital at Risk’ structured products.

Capital Protected structured products are designed to return the investor’s initial capital, irrespective of the performance of the underlying index or other performance benchmark (subject to counterparty risk).

‘Capital at Risk’ structured products are designed so that whilst the potential returns can be much higher, there is also some risk to the initial capital. Usually with these types of structured products, there will be some form of protection ‘barrier’. These types of structured products will therefore give rise to a loss on the investment if, at maturity, the underlying index performs poorly over the investment term and falls below the barrier.  But if the index remains above the barrier, then the capital will be returned in full.

Read more about Structured Products:

What are the Advantages of Structured Products?

Risks of Structured Products

Capital Protection in Structured Products

Capital Protection vs Capital Guarantee

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