What the experts say

What the experts say

17 August 2010 / by Lois Avery

One investment alternative while interest rates remain at historic lows are structured investment products. Structured products are sometimes criticised for being too complex but they are often quite straightforward, offering competitive returns in difficult markets. Julie Smith answers common questions about structured products and proves that they can be a worthwhile investment. 

1)    What are the benefits of structured products right now?

Because the markets are so uncertain more and more people are looking to protect their money, or at least to be able to quantify the level of risk they’re taking.
Structured products offer varying degrees of protection not usually associated with the more traditional investments. They offer investors the opportunity for market linked growth without the full risks associated with investing directly in equities.

2)    What type of investor would a structured product suit?

Because of the many types of structure available there is a product suitable for most types of investor. There are a wide range of ways to invest ranging from personal investments in  ISAs to pensions. In addition most products are also suitable for investments from businesses, charities or clubs and associations.

As cash rates are extremely low investors are looking for alternatives to bolster their income portfolio even if it means taking an extra level of risk with their capital. Structured products can offer a solution as they generally offer rates higher than those associated with cash.

They bridge the gap between investing in cash and directly into equities and can offer a suitable alternative.

Structured products may also help an investor reduce the overall risk profile of their portfolio.

3)    What are the benefits of income investments vs. growth investments?

Those seeking an income from their investment can do so with an income product, which usually pays out monthly, quarterly or annually. But for investors who do not need access to their money a growth product allows interest to accumulate and will be paid out at the end of the investment term. This may be suitable for an investor who is trying to save for a child’s education or even retirement planning.

Another factor to consider when looking at income and growth products are their taxation treatments. Obviously income products will be subject to income tax and growth products will be subject to Capital Gains Tax and will currently benefit from the tax free allowance available at maturity.

4)    Structured products are often seen as too complicated and risky: Why is that?

Generally speaking it’s due to a lack of understanding. Like any other type of investment structured products have their associated risks. As long as you fully understand the product on offer and the benefits and the risks you can make an informed decision about whether it’s the right investment for you. But always seek advice if you’re unsure.

5)    What product on the market would you say is a good deal at the moment?

Royal Deposit Plan
This product is good if you’re looking to diversify your income portfolio. Interest of 4.15% is paid out annually, it’s capital protected because it is deposit based and is backed by Ulster Bank, who are part of the RBS Group.

Morgan Stanley FTSE Income Plan

This one offers a highly attractive rate of income of 7.50% gross per annum and, whilst capital is at risk, it does benefit from a 50 per cent safety net to give you a level of protection against volatility in the markets.

6)    What advice would you give to anyone thinking about investing in a structured product?

My advice is to make sure you know the product and any risks involved. You can look on our website for more information or phone the helpdesk with any questions, that’s what we’re here for.

© Fair Investment Company Ltd