US Structured Products

Structured Products are unique investment products that are marketed using a distinctive name coined by the issuer. US Structured product investments are usually structured by the issuer in a way that will give the investor a return that is specially linked to the return on stocks, currencies and bonds.

A large number of structured products function similarly to a gambling product, since they require an individual to bet on price movements of the underlying investments and to receive a high or low return based on a very unpredictable outcome.

The gambling analogy further strengthens if an ordinary person is involved with US structured investment products, since he may have difficulties calculating the probability of each outcome where he can get a specified return. This makes investing very risky for small time investors who lack the necessary knowledge. Even if there is a guaranteed return, there is a chance the investor may be getting unfair terms.

Structured products usually come in the form of credit-linked notes, equity linked notes, currency linked notes, capital protected notes, and capital guaranteed notes and other products with values tied to another product’s. There are also numerous variations of these examples and they only come in different marketed names.

The feasibility of structured products usually depends on a number of things. For starters, a US structured product investment is good for an investor if it meets a specific and special need of the investor and gives a fair return for the risks involving the product. It would also be a boon if the product incurs a low cost in terms of design and marketing and its functions and makeup simple enough to be understood by the investor. Currently, majority of structured products in the market fail to meet all of the above conditions.

On the other hand, a lot of structured products receive flak from investors and analysts because they are designed to behave like a gambling product, where an investor’s only hopes of earning a profit is through probabilities, and that some of them have returns that seem poor compared to the risks involved. The biggest reason why a lot of structured products are criticized is because they are so complex and incomprehensible that even the investors themselves have no exact idea what they are getting into. These types of structured products are designed to make a profit for the issuer at the expense of the investor and should be avoided.

One key thing about structured products is that they have a specific lock-in period. The investor must keep the investment during this period, which usually lasts from 3 to 7 years. This is done to spread out the impact of the frond end cost. If the investor wants to terminate the product before the end of the lock in period, the termination value is usually much lower than the investment amount, since the issuer has to recoup the front end loss, which means the investor will suffer a large loss. So in a way, an investor must check and study his options clearly before investing in a structured product. Investment should not be done if the return is low due to high front-end costs.