Structured Investments Guide
Measured investment returns
Structured investments offer defined exposure to markets over fixed terms, with some protection from market falls.
Linked to the performance of an underlying market, with a fixed-term horizon, structured investments can offer the potential for above market returns, without the volatility of full exposure to that market.
Returns are achieved by using a financial instrument called a derivative that will yield a defined level of return if certain conditions are met. The conditions of the return are often based on changes in the underlying market or index over the plan term.
So, a 6 year structured investment plan may offer a 60 per cent return as long as the underlying index is higher than the level at the start of the plan.
One of the other elements of structured investments is some protection from falling markets. For example, capital in a structured investment may only be at risk if the underlying index falls by 50 per cent or more than the initial level. This is often referred to as ‘soft protection’.
Capital is at risk in these plans as it cannot be guaranteed that the index will not fall and after a fall to or below any protection level some or all capital can be lost.
Return of capital also depends on the plan counterparty being able to meet its liabilities and repay investors. Part of the structured investment is a type of bond taken out with an institution, generally a bank, which is the plan counterparty.
There are structured investment plans which can offer potential capital growth over the fixed term and other plans which aim to return a regular income. As with growth plans, income returns from a structured investment may be dependent on the performance of an underlying index. Other income structured investments may offer a fixed rate of income but the initial capital will be at risk, dependent on the performance of an underlying index.
Structured investment plans – known as kick-outs or auto-calls – are designed to mature early if certain conditions are met.
This type of plan is a fixed term contract but includes a point or points at which it can mature early. For example, a six year plan may include the condition that on its third anniversary it will finish early if the underlying index is at or above 10 per cent of its initial level. The level of any return will often differ depending on whether the plan ‘kicks-out’ or runs for its full length.
See the tables below for examples of structured investments:
Important Risk Information:
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.