What is a Structured Investment Product?
A Structured Investment Product is a legally binding contract between an investor and a bank. The investor lends money to the bank for the life of the product (typically five years). At the end of the product life, the investor receives the product return from the bank.
The product return is based on a formula, sometimes based on the performance of the prices of individual shares, but more typically on a share price index, such as the FTSE 100 or CAC 40.
What is a Structured Deposit?
Structured Deposits are similar to Structured Investment Products except that, instead of lending money to the bank, the investor deposits money in the bank.
Structured Deposits are always designed to return at least the initial amount deposited at the end of the product life.
Depositors benefit from extra protection over lenders; in particular, UK investors in Structured Deposits may benefit from the Financial Services Compensation Scheme’s deposit insurance scheme.
What is are the features of a structured product?
Structured Products can provide investors with features that cannot be achieved through “standard” investments such as shares or bonds. For example, some Structured Products provide protection against drops in share prices; some deliver returns that increase faster than share prices themselves; and some can provide positive returns even if share prices do not increase at all.
Product returns are usually clearly defined and quoted net of all fees and charges. This means that “what you see is what you get” (before tax). However, because all fees and charges are already built into the product, you cannot explicitly see what they are.
Structured Products are sometimes designed to provide a tax-efficient outcome for the typical investor, for example, using the tax benefits of ISAs, SIPPs, off-shore bonds and Capital Gains Tax allowances. This does not mean that a product will be tax-efficient for everyone. You should always check with your personal adviser at Forgues Gestion that a particular product is tax-efficient for your specific circumstances.
Structured Products are often used as part of a wider investment portfolio. In combination with “standard” investments, Structured Products can make a portfolio’s returns better match your needs, for example, by reducing your exposure to negative returns. This is why we believe that your adviser at Forgues Gestion is the most qualified person to choose with you the Structured Product that fits the best to your personal risk tolerance and fiscal situation.
What is are the risks of a structured product:
There are specific risks related to structured products such as:
- Your investment might not be fully protected
- If you take your money back before the end of the period of investment, you should be aware that if you want or need to access it later, it might not be in under the same conditions.
- You should not invest in structured products from one bank only but diversify the issuers because even with a capital guaranteed product, there is still the issuer risk. To lower this specific risk, you can look up the different bank institutions “credit ratings” and find the strongest ones.
- Even if a part of some structured products are based on the performances of share prices, you will not get the dividend if there is a distribution to the shareholders.
- Some structured products are very difficult to understand, this is why at Forgues Gestion, we only use simple products with maximum two mechanisms so that we are sure you can easily understand the product with our explanations.