You are in

FOR INDIVIDUAL

FOR BUSINESS

FOR BUSINESS

Disclaimer

This is to inform that by clicking on the link, you will be leaving our www.sc.com/inand entering a website operated by other parties:

Such links are only provided on our website for your convenience and Standard Chartered Bank does not control or endorse such websites, and is not responsible for their contents.

The use of such website is also subject to the terms of use and other terms and guidelines, if any, contained within each such website. In the event that any of the terms contained herein conflict with the terms of use or other terms and guidelines contained within any such website, then the terms of use and other terms and guidelines for such website shall prevail.

Thank you for visiting our www.sc.com/in

Proceed
Structured products
  • Stories
  • Inv Scinvest Structured Products

What are Structured Products/Market Linked Debentures?

What are Structured Products/Market Linked Debentures?

A structured product is an investment that combines characteristics of traditional investments, like bonds, with traits of more complex investments, like derivatives.

As per SEBI norms, hybrid securities combine features of debt securities and exchange-traded derivatives. Derivatives are financial contracts which derive their value from the performance of an underlying asset – stocks, stock indices, etc.

Structured products allow investors to profit from asset price movements without directly owning the asset. These products incorporate derivatives to link the returns to the performance of the underlying assets.

Characteristics and Elements of Structured Products

Structured Products have different characteristics and elements, such as:

  • Bonds:Within Structured Products, bonds ensure capital preservation, with the issuer committing to repay the capital.
  • Derivative instruments: The use of derivatives, including Futures, Options, and Swaps, among others, to tailor the risk-return profile according to the investor’s risk appetite.

How do Structured Products Work?

Structured products start with a base investment, like a bond that pays interest and returns the original investment at maturity.

The issuer, typically a bank or an investment firm, adds derivative “mix-ins” to modify the payoff and risk/return profile.

For example, an issuer can use derivative contracts to link some of the returns to the performance of the Nifty 50 stock index over the product’s life. If the index increases, the investor participates in those gains on top of the base bond returns. But if the index declines, the derivatives may cap or limit the losses.

Because structured products have multiple components “baked in,” they can provide customised investment outcomes aligned with an investor’s risk tolerance and goals. Risk-averse investors may want principal solid protection, while others may seek higher upside potential.

To calculate how much funds to be set aside for emergency, visit our emergency fund calculator.

Who sells Structured Products?

Private banks, wealth management firms, and NBFCs offer structured products in India. These products are typically suited for high-net-worth investors seeking portfolio diversification and high returns with lower risk.

Types of Structured Products in India

  • Conservative Structured Products: These structured products guarantee principal protection on the initial investment, regardless of the derivative’s performance. These products prioritise capital protection, with a larger allocation towards bonds or debt securities, resulting in relatively lower returns from equities.
  • Aggressive Structured Products: Aggressive structured products do not assure principal protection on the initial investment. These products carry high risks, but there is potential for higher returns upon maturity. Benefits of structured products
  • Customisation to blend different risk/return characteristics
  • Principal protection in some types of structured products
  • Access to asset classes and strategies that may be difficult to implement directly
  • Diversification by combining exposure to multiple assets

Risks of Structured Products

Some of the major risks associated with Structured Products are:

  • Complex payoff structures that can be difficult to understand
  • Exposure to the credit risk of the issuing institution
  • Liquidity risk or limited ability to sell the product before maturity

As is with any investment, structured products require a thorough analysis of the specific terms, risks, and whether the payoff structure suits one’s objectives and risk tolerance. While the customisable feature allows for innovative combinations, these products can involve complex, hard-to-value derivative exposures, which need careful evaluation.

To know more about online mutual fund investment with SC Invest, click here.