What Should You Know Before Investing In Structured Products?

[Shashank Bhaskar]

Investors who want diversification prefer structured products. These instruments may be used to achieve goals such as preserving capital or inclusion in the upsides given by equity.

Structured products are a method for generating wealth and securing portfolios. Also known as Nifty-linked debentures, these products are intended to generate returns based on the underlying Nifty results.

Non-convertible debentures came with set coupons, although they are static, conventional cousins. Today, their success could be related to Nifty due to financial engineering. Because of this evolution, SP can be built in a zillion ways to generate returns through different consumer moods through versatile coupons. To help investors make the most of it, this less-understood product category is explained below.

Features of a Structured Product

Fixed income and derivative elements are made up of structured finance products. Derivatives in the economic environment are a very notorious lot. Professional design is required to tame this investment vehicle and reap its benefits through successful risk management. The critical combination enables the product to optimise the likelihood of achieving anticipated returns while keeping the degree of risk in check.

The return of structured products in India is related to Nifty's results. Depending on the product construction, the desired degree of aggression and the targets it is supposed to achieve, the returns produced by these products can vary from 10 to 25 per cent CAGR, or even higher.

To reap the benefits of the product, structured investment products usually allow an investor to remain invested in the product for three years.

It is available in covered, partial-principal and non-principal primary varieties. To classify them into debt and equity types, their actions in terms of aggression and return generating capacity can be used.

Depending on the way the product is designed, the risk can differ significantly. It can be built to balance ultra-conservative investors' risk appetites to ultra-aggressive investors. Alternatively, SP is used as a diversification process. Furthermore, the underlying issuer's credit risk (NBFC) is another risk that an investor is exposed to.

To reach return goals, SP is professionally built and operated with great care. In a troubled Nifty situation, it may be created to imitate Nifty or to offer positive returns. SP practitioners can also build strategies to effectively use a mix of structured finance products to achieve those financial goals.

The commodity's versatility enables it to induce portfolio stability and make positive returns even during a downward market movement.