Structured kick out plans offer investors a pre-determined rate of return based on an underlying asset e.g. FTSE 100 performing in line with set targets on one of a set of given dates.
So as an example a kick out plan where the underlying asset is the FTSE 100, where after year one of the plan on the set date the index has finished above the target level determined at the beginning of the plan, there would be a pre-determined payout e.g. 8% plus the repayment of the original capital. If the index is lower at the set date the investor would need to wait until the second anniversary before receiving a potential payout. If the kick out does not happen on any of the anniversary set dates the plan will run to full term. At full term capital will be returned in line with the terms of the plan.
With kick out plans capital will usually be at risk if the underlying index that is being measured falls by more than a set amount e.g. 50%. Kick out plans are suitable for investors who want to achieve a pre-determined return but accept that the potential for early maturity may not happen and capital may be tied up for the full investment term. For most kick out plans capital will be at risk so investors need to be comfortable with this.