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Structured Products

Structured products in finance point to a set of 2 or more assets or securities having a combination of an interest rate and single or multiple derivatives. Pre-packaged investments like these consist of traditional financial instruments, like equities, options, investment-grade bonds, indices, commodities, mutual funds, ETFs, or currency pairs, with non-traditional payoffs.

In simple words, structured products are savings or investment products in which the return is linked to an underlying asset having pre-defined features (maturity date, coupon date, etc.). Structured product can also be seen as a product package using 3 main components:

  • A bond
  • One or more underlying assets
  • Financial instruments linked to the underlying assets (the derivative strategy)

Since structured products have a huge variety, there is no simple definition—or one uniform formula for calculating the risk and payoff—of the structured products. Most of the structured products include “Options.” This is a type of derivative product which can give investors the right to buy or sell something at a pre-determined price and date. This price is called strike price.

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Benefits of investing in structured products

Protection of capital

Structured products provide some form of capital protection. Depending on the investor’s preferences, investments in structured products are available to minimise risk exposure completely.

Enhancement in yield

Structured products have the potential to provide higher yield on sideways markets. Investments in structured products can provide market access too. The investors can gain access to a new market or asset class which isn't available through domestic securities.

Can provide diversification to portfolios

Active funds, which are run by professional fund managers, take risks to outperform the market. Other passive investments follow the market and the investment managers do not take any risks in the case of passive investments. Structured products offer the blend of both. This means structured products are a good addition to investment portfolios. These products can diversify the risk to a great extent. By combining investments with different risk profiles, investors tend to get the results they want irrespective of the market direction.

Risks of structured products

  • Since the performance of structured product depends on the underlying asset’s or index’s performance, significant price movements can impact the returns.
  • Most of the time, investors won’t have any access to their principal for the term of the structured deposit, without incurring some loss on principal. Therefore, for structured deposits, investor’s principal is only protected when they hold it to maturity.
  • If the issuer of structured product goes bankrupt, the investor can lose his/her principal amount.

How VSRK Capital can help investors?

Since there are risks associated with the investment in structured products, careful analysis is required before investing in these products. Therefore, market expertise is of utmost importance.

VSRK Capital can help in suggesting which structured product is suitable for which category of investors. With a strong background in finance, suggestions of VSRK Capital can help you tailor your wealth to your values. Thus, it can be ensured that your wealth leaves a positive impact.

VSRK Capital can help in defining the portfolio that can help you manage your personal finances. Reach out to us now!!

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