If you’re looking for new investment vehicles, you may want to consider Structured Products. However, much like any other investment purchase, you must do your homework and really take your time to find every fact you can about what you are getting yourself into.
The New Savvy wants to make sure that you make smart financial decisions. It’s very important to get into details when looking into an investment vehicle, especially those that may be new to you. If you want to know more about Structured Products, you have come to the right place. To go further into this type of investment, here are in depth details on its different types.
What are the different categories of Structured Products?
As mentioned before, Structured Products have no one, particular rule due to its highly customisable characteristics. Because of this, some types may differ per company. However, we can divide the kinds into four different categories.
For easier discussion, we are dividing these categories according to its potential return and risk and the product’s overall goal. Take note, however, that due to its highly customisable feature, company names for these categories and products may differ.
Some Structured Products focus mainly on protection. These are good for investors who have low risk tolerance. The underlying assets in this package differ per company, and thus, also differ in performance. However, if a category aims for protection, this Structured Product would mostly cover bonds and money markets more than securities and other fast yielding markets.
Investors who have high risk tolerance may invest in Structured Products that focus on optimisation. The underlying assets in this package may cover more equities than bonds.
This category goes with the price trends of its underlying assets. The category is called as such because investors may join this just to get exposure to baskets of funds they are not commonly invested in. This fits perfectly for investors who have moderate to high risk tolerance.
Investors who are on a budget can maximise leverage and hedge their portfolio. Only those with extremely strong appetite for risk are advised to join this portfolio. Also, an in-depth knowledge of different financial markets is a need.
These four, however, are not types of Structured Products, but categories. Remember that structured products differ from one company to another, so it’s hard to pin-point definite types. This does not mean that there are no official types of Structured Products.
In fact, there are three kinds. Just always take into consideration that though companies may follow the said categories and/or the types, each structured product must still be studied independently as they may differ in a lot of ways.
What are the types of Structured Products?
Structured Deposits work like fixed-term deposits account. However, the difference lies on the dependence of Structured Deposits on the performance of its underlying asset. For example, your plan states that if the SGX went up during your holding period, you will get your capital back plus 15%. If this does not happen, then you only get your capital back.
Structured Capital ‘Protected’ Products
Just like structured deposits, this one is designed to return the capital at the end of the holding term. But just like capital-at-risk products, they are used as loans to institutions. Instead of looking at SGX, for example, this product depends on the financial solvency of the institution you are investing in – usually major banks.
This type is highly risky as it does not offer any type of recourse for default. If the institution declared bankruptcy, then the investor losses all of his money.
Structured Capital-at-Risk Products
The most prevalent Structured Product type is the Structured Capital-at-Risk products. These investments offer high returns. However, the security of the capital is not guaranteed. High returns may also mean high losses.
Again, though there are these categories and types, one cannot simply pinpoint and create a formal generalisation around Structured Products because they all work differently per product per company. However, much like other investments, they all have something in common: if you invest your money in any product that you are not fully familiar with, you will definitely lose your investment.
If you are interested in Structured Products, make time to study them. Or you can quickly reduce your learning curve by contacting The New Savvy. We are always ready to help you with your financial goals because we want you to achieve your financial dreams.
She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen).
Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).
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