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Structured Products



Investing

How to invest in Structured products

Product providers
Life offices, fund management groups, banks, and the government's National Savings & Investments all offer structured products for public subscription, with the support of large and well-known institutions behind them.
A number of wealth management groups and 'boutique' investment houses also broker structured products, and some of these firms can even tailor schemes individually to suit a high net worth investor's objectives.

Financial advisers
The Financial Conduct Authority reports that up to the end of 2002, two thirds of investors in structured products did not take any professional advice before buying them.
Before committing any significant sum in an investment that is designed to be held over a period of years, it is important to understand how it works, and what can be expected in terms of risk and return.
A good Independent Financial Adviser will be well versed in what can be a complex product, and towards the end of this guide there are details of how to get in touch with one.
Deciding between different products
There follows some of the key factors for consideration when choosing a product that fits the investor's circumstances and objectives:
Domicile
If the provider is in the United Kingdom, the product will be subject to the UK regulatory regime, which offers a high level of protection to private investors. Securing this protection by investing onshore has a price, of course, in that it comes with the UK tax regime as well.
On the other hand, the well-established offshore centres - the Channel Islands, Isle of Man, Dublin and Luxembourg - also have strong regulatory regimes that in many respects mirror, or even exceed, that of the UK.
Period
A range of product periods is available in the marketplace, from relatively short- to medium-term. Since these products are intended to be held until maturity, the investor should have a clear idea of what financial needs are likely to arise over the period.
Return
Products offering higher returns are likely to be more risky. More of the sum invested is diverted from capital protection to the income- or growth-producing asset.
Gearing
In most cases, product design will allow for downward market movement to a predetermined level. Beyond that level, the investors' money is reduced proportionately for every further drop in the market, and the proportion lost for every 1% fall will vary from plan to plan. This is where the precipice bondholders came unstuck. Generally, the higher the projected return, the higher the downside risk that has to be assumed.
Underlying assets
Aside from the bond that provides a measure of capital protection, the range of assets intended to prove income or growth has expanded considerably over recent years. This is what allows the investor to take a view on future market movements and choose an asset proposition to match. Whether this is based on particular equities, investible indices - including commodity, hedge fund or forex indices - or even house price movements, the options are there.
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