Published on : 21 April 20204 min reading time
Nowadays, some investors focus on various investment classes and asset management. Money has become the important factor in this capitalist world for improving the quality of life. Making sure that hard-earned money is safe and being invested under expert supervision is as important as making money. Structured products are one of the most important components of investing money. They are the type of investment created to meet specific investment needs.
Definition of structured products
Structured products are those commonly offered by insurance companies and banks or financial institutions. By definition, a structured product is a product that is combined with a derivative product that indicates a traditional stock market investment. In general terms, they are savings or investment products whose return is linked to an underlying asset with predefined characteristics (maturity date, coupon date, level of capital protection, etc.). It is a single, indivisible package consisting of a combination of an interest-rate-linked product and one or more non-traditional financial derivatives. The main objective is to prevent the capital from becoming negative, then the other is to provide the bonus which is the excess money. One of the main attractions of the structured products offered by Julien vautel is the possibility of having many customized assumptions in a single instrument. Direct investments such as equities, real estate can lead to a loss of money if the investments go wrong. But in the case of structured products, it doesn’t work as simply as buying something and selling it at a profit or loss. They tie up the client’s money for a period of time with the possibility of providing income, growth or both in some cases. Like other structured products, they also depend on the stock market index. As a result, when the films providing the underlying investment go bad, in structured investments the person will also lose some or all of the initial investment. They are therefore riskier, but they are also much more considered investments. Although there are countless possibilities with structured products and their features, good product designs are as simple as possible. Julien Vautel explains the 3 basic characteristics of structured products.
The performance of a structured product depends on its underlying assets, which are generally equities or indices. For example, clients wishing to invest their retirement money would opt for underlying assets that are country indices. Country indices are the safest way to avoid capital risk, as they are much less volatile. Investors can choose various types of products with respect to the underlying assets. For an amateur in the field of structured products, he will have underlying assets such as Facebook, Apple, Netflix, Sony, essentially a basket of technology stocks called the FANS basket. The performance of the structured product depends on the underlying assets. For most structured products, the performance is linked to the underperforming underlying asset. Let’s assume that in the FANS basket, Facebook shows the worst performance at 80% of the purchase price. This means that the structured product also performs at 80%.
The coupon trigger
The coupon trigger determines whether coupons (think dividends) are paid. Coupons are paid as long as the worst-performing underlying asset is greater than the Coupon Trigger. For example, a coupon trigger of 70% would mean that the underlying assets can fall as low as 70% of the redemption price and that the coupons will still be paid. Imagine that Facebook is the worst performing underlying asset with 80%, which is still higher than the 70% coupon trigger, so the coupons are paid. Even if all the underlying assets have fallen below the redemption price (100%) as here, the investor still receives his coupon and makes a profit.
The protective barrier
The concept behind the protective barrier is exactly the same as that behind the coupon trigger. This time, instead of looking at the coupons, the protective barrier protects the investor’s capital. At maturity, the full principal is returned to the investor as long as the underperforming underlying asset is above the protective barrier. Structured products are popular in today’s markets because of this feature. For example, a protection barrier of 60% would mean that the underlying assets can fall as much as 60% of the redemption price and that the full principal will always be returned at maturity. If this were a traditional investment in a fund, the investor would have lost 40%. These 3 characteristics are the main features of most structured products.