Structured notes: definition, features and description

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Profitable investments - a topic that does not lose its relevance. In this regard, various tools are constantly being formed that allow you to bring income to a fundamentally new level. One of them is structured notes.

A little about structured products

It is worthwhile to understand that there are two large groups in the financial services market that compete with each other, trying to attract the attention of customers. We are talking about banks and companies related to the stock market.

In recent years, banking structures have been in a better position, so many investment companies have made great efforts to create new attractive products that allow you to receive high income. Strong competition was based on the principles of the deposit, which eventually led to the creation of structured products. It is this category that is defined as structured notes.

What should be understood by this term? In fact, we are talking about a unique format for making a profit, which makes it possible to manage key stock market instruments (deposits, bonds), as well as their derivatives (swaps, options, futures) on a fundamentallynew level.

This confirms the fact that the use of structured notes quite often leads to a 100% return on investment and even more. Obviously, this is a fairly bright result, which minimizes the risk of losing invested funds.

Bank deposits with such indicators, respectively, cannot compete.

Trying to understand what structured notes are, you can look at this product a little differently and define it as a competent combination of traditional investment financial and banking instruments (futures, options, etc.). To put it even more simply, this is a mix of traditional methods of making a profit, which, thanks to the skillful combination of standard schemes, allows you to get a new, much more effective way to increase profits.

Reliability

Like any product that is not quite familiar, structured notes can cause a certain distrust. In fact, there is no reason for such a reaction.

The bottom line is that the degree of capital protection in investment products of this type can be defined as high. More specifically, it can provide guaranteed returns at the level of the refinancing rate of the Central Bank of Russia.

But structured products also have their limiting factors. One of them is their cost. We are talking about the fact that only we althy people will be able to use them, others simply do not have enough money. The starting cost of such toolsstarts at $10,000 and can go as high as $500,000.

The good news is that some of the big retail banks offer structured products as low as $3K.

First structured note

The use of such products began back in 1969 in the US stock market, and since then they have undergone many changes. As for the Moscow Exchange, for the first time the note was introduced to this market by the FG BCS group of companies. It was defined as a structured credit bond.

Issue of such securities has never been practiced in Russia before. The new product was linked to three large banks (Sberbank, VTB and VEB). As for the payment, it was made in the form of a semi-annual coupon with a yield of 13% for 12 months. At the same time, the nominal value of the product was 80 thousand rubles. The maturity date of the bonds was set for April 2017.

Working principle

When an investor purchases a product such as a structured note, a bond, he connects his finances to a whole range of instruments. It would also be fair to note that the money is actually transferred to trust management.

This process has a legal basis and from the side of the law is absolutely legal (order of the Federal Financial Markets Service No. 07-37 / pz-n). At the same time, initially there is a certain level of profitability that an investor can count on.

Return on investment is guaranteed thanks tousing a proven scheme: dividing the investment into two parts. The first and largest of them is invested in those instruments that have a fixed income. It is this part that should bring 100% compensation by the end of the term. High security bonds or a bank deposit can be used here.

The second part is invested in highly profitable, but significantly more risky operations. Which ones are largely determined by the structure of the note, but usually it is working with market volatility, changes in the stock index and other risky options that provide an opportunity to get a significant increase in invested funds.

Thus, an investor who purchases structured notes can expect at least 100% compensation, at best, and completely different percentages.

Common types

There are several types of structural products that are used most often:

• Notes with capital protection. The key difference of this product is the full refund of the amount at the time when the final payment is made. Moreover, this fact does not depend on how effective the assets underlying the product turned out to be in the end. It should be understood that, compared with other types, this one is the least profitable, but the most reliable.
• Phoenix sheet music. The structure of this tool makes it possible to receive monthly payments. Another convenient frequency is also available (once a quarter or every six months). Due to such frequent payments, this type of notes also cannot be called the most profitable, but on the other hand, the investorcan withdraw its profits on an ongoing basis.

Notes with automatic termination. In this case, there are no such frequent payments as when using Phoenix. The goal is the continuous accumulation of the desired amount, which is automatically completed at the moment when the set profit threshold is reached. Until then, you won't be able to withdraw money. After the process is completed, the investor receives all the invested money and profits

New Species

There are a lot of varieties of notes. The financial and stock markets are developing, and investment products are being improved after them.

If we talk about examples, we can remember the so-called "Booster". This structured note is based on the use of financial leverage. His goal is quick profit, which is accompanied by high risks. There is one underlying asset, with the help of which a significant increase in investment is achieved. This product does not offer a guaranteed return, as well as stable coupon payments.

New Structured Notes include Auto Call. It is becoming more and more popular in the Russian market. It is based on selling volatility. In this case, high profit with a considerable level of risk is also considered as a priority. With this scheme, there is conditional capital protection, which largely depends on the dynamics of changes in quotations of key assets.

Investorsalso use the "digital" note. This product will be of interest to those who do not intend to endure significant risks and rely on a moderate but stable growth of investments. At the same time, coupon payments remain available to the investor.

Results

Those who tried to get an answer to the question "structured notes - what is it", it will not be difficult to assess the relevance and popularity of this product in the field of investment.

These tools allow you to choose the most appropriate way to multiply your own funds: slowly and safely, or quickly, but with high risk. In any case, the popularity of such an effective market offering as notes will continue to grow.