Structured products

A structured product is a contract whose repayment follows a formula set in advance, linked to the performance of an underlying.

Rather than buying an index or a basket of shares directly, the investor subscribes a note whose gain and repayment depend on a formula and a maturity.

Capital protection or guarantee

At maturity, the issuer repays at least a set percentage of capital (say 90 % or 100 %), whatever the underlying did. Protection has a cost: it reduces participation in the upside.

Participation

The share of the underlying's rise that accrues to you. A 60 % participation on an index up 20 % gives a 12 % gain.

Autocall

The product redeems early and automatically if, on an observation date, the underlying is above a call level. You then get capital back plus a coupon. Otherwise it runs on to the next observation or to maturity.

Worst-of

The formula applies not to one underlying but to the worst performer in a basket. This raises the coupon on offer, but also the risk: a single underlying falling is enough to spoil the outcome.

What to check

The protection level, the coupon barrier, the call barrier, the maximum maturity, and above all the issuer's credit risk: a structured product is only a safe investment if the issuer is.

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