Singapore has always been known to be one of the most financially savvy countries in the world. Among the many reasons for this claim is the diversity of investment products being offered in the country.
The diversity of the country’s financial sector has given birth to many products – both simple and complicated ones. Among the many products offered to Singaporeans, Structured Products emerged and pulled in a lot of different money-making opportunities in different types of markets and placed them in one basket.
What are Structured Products?
Structured Products are investment products that are hard to classify into simple categories. These products are created with a customizable feature that lets their makers tailor them to different functions and financial goals.
Structure products are simply blends of conventional securities like bonds and stocks and derivatives like indices, swaps, currencies, commodities, metals, and even interest rates of foreign countries. Structured products are the only financial instruments capable of offering a considerable degree of customization of risk-return profiles. They also allow your investment to take advantage of the profitability of ranging markets and bearish markets, which will depend, of course, on the client’s own risk profile.
What are Structured Products for?
Structured Products can be molded into products that focus on each of these objectives: capital preservation, risk-reward upside, market exposure, fixed income rate, capital appreciation, and time horizon. Every structured product in the market is unique, so an investor must take the time to study diligently and comprehend the ins and outs of her custom investment instrument.
Who are Structured Products for?
If you are the risky type of investor, you may want to consider investing in Structured Products. Those who want to get more exposure to non-conventional markets and the derivatives market may also add this to their prospective investment choices.
What are Structured Products In Singapore that Singaporeans can choose from?
Singapore has two general types of structured products sold in the market to investors: Structured Notes and Structured Deposits.
Structured Deposits are sold by banks to retail investors. Dual currency investments are sold to more erudite ones, who are the clients of the premiere and private banks in the state.
A Structured Deposit is a combo of deposit and investment. Like conventional investment funds, the investment returns of Structured Deposits are based on the performance of the underlying assets the Structured Deposits track.
Despite its super-flexible nature, Structured Deposits still offer significant potential returns with attached conditions. An example of a condition is capping the potential profits at a particular rate or making the returns allowable for withdrawal only when the stock linked to the Structured Deposit reaches or exceeds a specific price at a specific date onwards.
With all these added values on investment, Structured Deposits offer risks that investors should not ignore.
Interest Rate Risk – Will affect the investment’s value as time passes.
Inflation Risk – Will weaken the purchasing power of the capital.
Reinvestment Risk – Will hinder you from finding investment instruments that will offer similar yield.
Structured notes are linked to a more varied mix of assets and derivatives, which may include unusual ones. Structured Notes do not offer the same capital guarantee claim from banks that Structured Deposits have. The particular term “capital protection” is not allowed to be used in selling Structured Notes to retail investors.
The traditional structure of Structured Notes involves its link with a basket of securities. The Structured Notes may give away annual coupon, only if all the securities reached gains at a specific percentage. If the condition is not fulfilled, the coupon will not be issued and some of your capital may even be eroded.
Structured Notes are also exposed to a lot of risks.
Counterparty Risk: Exposes you to the counterparty’s failure to fulfill its duties.
Market Risk: Exposes you to massive value fluctuations that may devalue your investment.
Liquidity Risk: May cost you a penalty if you withdraw your capital before maturity.
Making structured products profitable require due diligence, the vow of learning the product and the market it participates in, a deep understanding of its underlying assets, the performance of the Structured Product itself, and your commitment to the purpose of your investment. It is advised that investors should only invest in instruments that they can handle when the worst case scenario happens.
Remember: The more you learn, the more you earn.
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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