Product Structure
Understanding Structured Products
Learn how structured products combine bonds and options to provide principal protection with market exposure.
Structured Products
The Building Blocks of Principal Protected Notes
Structured products are engineered financial instruments that combine traditional investments with derivatives to create unique risk-return profiles. They are designed to provide exposure to underlying assets while protecting your principal investment.
Key Features of Structured Products
Discover the unique advantages that make Principal Protected Notes a valuable addition to your investment portfolio.
Principal Protection
Designed to return your initial investment at maturity, providing a safety net against market downturns while still offering growth potential.
Market Participation
Gain exposure to market upside with defined parameters, allowing you to benefit from positive market movements while limiting downside risk.
Customizable Structure
Tailored to specific market views or investor needs, combining elements of fixed income and derivatives for personalized risk/return trade-offs.
Flexible Investment Terms
Choose from various maturities, underlying assets, and participation rates to align with your investment timeline and financial goals.
Portfolio Diversification
Add a unique asset class to your portfolio that behaves differently from traditional investments, enhancing overall diversification and potentially reducing volatility.
Product Comparison
Understanding the key differences between typical trading products and structured products like Principal Protected Notes.
| Aspect | Typical Trading Product | Principal Protected Note (PPN) |
|---|---|---|
| Structure and Complexity | Straightforward assets like stocks, bonds, mutual funds, or ETFs. Represent direct ownership in a company or a debt claim. | Engineered instruments combining traditional investments (often bonds) with derivatives. Designed to provide exposure to underlying assets while protecting principal. |
| Risk/Return Profile | Returns directly linked to market performance. No built-in guarantee for principal, value can fluctuate widely based on market conditions. | Guarantees return of original investment at maturity (assuming issuer solvency), while offering potential for additional gains if underlying asset performs well. Upside often capped. |
| Liquidity and Trading | Most traded on public exchanges, relatively liquid and easy to buy or sell at market prices. | Typically issued for a set term with limited secondary market trading. Exiting before maturity may face liquidity constraints, pricing inefficiencies, or penalties. |
| Fees and Transparency | Straightforward fees (brokerage commissions, management fees) with more transparent cost structure. | Often involve embedded fees within the product structure (derivative overlay costs, issuance fees) that may not be as transparent as standard products. |
| Credit Risk | Primary risk is market risk for stocks/ETFs. Bonds have credit risk related to issuer, but risks are usually well-understood and rated. | Principal guarantee depends on issuer's financial health. If issuer defaults, protection might fail, adding an extra layer of counterparty risk. |
| Customization | Generally standardized, offering the same basic structure and risk/return profile to all investors. | Can be tailored to specific market views or investor needs, combining elements of fixed income and derivatives for customized risk/return trade-offs. |