Structured investment products are pre-packaged investment strategies based on various underlying assets such as equities, interest rates, currencies, commodities etc. The value of the product can thus depend on the value of the underlying stocks or indices. The idea is to generate a particular payoff on the product to suit particular market views and maximize the returns thereof. Some structured products offer a ‘principal protection’ function if held to maturity.
The aim of a structured product is to protect the principal and at the same time give returns linked to stocks. Does this mean all your money is invested in the stock market? The answer is no, as there is no fixed criterion. The issuer can use the money for own business or trading complex derivative products as well.
However, there are structured products that do not offer capital protection features.
Structured products bring benefits of derivative investing to investors who do not have either access to these products or knowledge about them.