Manage risk with structured products
1 September 2007
If you have decided that you want to keep the lid on risk but would like to aim for some extra growth you could consider a structured product.
Structured products are designed to offer low-risk growth over a set timeframe. These days they come in a whole variety of flavours and colours with exposure to almost any market, global indices, property, commodities and even hedge funds.
So how do they work?
Here’s the basic process. Your capital (the money you invest) is split and 80%, say, goes into a low risk cash deposit account. The other 20%, less costs, goes into a relatively high-risk stock market investment which runs for a fixed term, usually five years.
The idea is that, over this time, the cash on deposit will grow to at least cover your capital. The investment part aims to make your profit.
Structured products generally offer to guarantee your capital and potentially give you a slice of stockmarket growth. Since the terms are set by so-called ‘market makers’ who are betting against future outcomes, they tend to be sold in a short window of six to eight weeks.
