As we explain in our guide to investing in structured products, these interesting investments can be complex beasts.
This article serves as a checklist of all the information you need to have before you invest in a structured product.
Each of the points below, will either drive your returns, define your risk or explain how the product will behave over time. Without knowing each of these things, you don’t understand your investment.
Ultimately, you will only lock-in your return when you receive the cash payment from the investment provider at the end of the investment term (or an early exit point).
- Are there penalties for cashing out early?
- Can the product be sold on the stock market or an internal secondary market?
- What determines the price you will receive if you sell early?
- Will you pay any fees to sell the investment?
Understanding the risks of your investment is essential to being able to pick the perfect match for your personal appetite to risk. Find out more about your tolerance with our investment risk appetite questionnaire.
- What are the underlying assets that the investment manager will actually purchase?
- How has the reference index performed in the past?
- What level of capital protection is built into the product?
- Which organisation is standing behind that guarantee?
As always, reducing your investing costs is an excellent way to boost returns without increasing risk. Therefore it pays to be aware of the fees attached to each structured product, to allow you to make an informed decision.
- What fees will you incur to buy and hold the structured product for its life?
- How will you be taxed on the returns?
- How will your return on investment be calculated
- How many unique scenarios could result in a different level of return?
- If the stock market rises significantly (e.g. 50%) over the investment term, how much would you get to participate in that rise?
- What is the value of dividends you are missing out on by earning a return linked to an index rather than the real return from buying shares?