Capital not at risk structured products are an investment type that has emerged over the last few years.

 

They are an option for clients seeking returns that are potentially better than leaving the money in the bank, while still guaranteeing at least the original value of the investment.

 

Please note, there are also capital at risk structured products available, they typically offer higher returns, but your original investment will be at risk in some circumstances.

 

 

Structured Products are offered by a large number of providers and there are many variations on a theme. To give you an idea of how they work take a look at a typical example taken from Investec's website, note the initial deposit is fully guaranteed at maturity...

Index	Term	Investment Risk	Return
FTSE 100	5 Years	Initial deposit is fully guaranteed at maturity.	Potential for maturity at the end of years 2, 3, 4 or 5 with a fixed payment equivalent to 7.5% per annum (not compounded).

In this example the investment term is five years and the returns are linked to the FTSE 100 index. If the FTSE is higher than the initial level at the end of year two, this plan will end and return the original investment plus 15%. If the index is lower at the end of year two then the plan will roll over to a third year.

The plan would end in year three if the index was higher at this point than the initial level, returning the original investment plus 22.5% (3 x 7.5%). Again if the index was lower in year three it would roll over to the next year and the same principles would apply in the fourth year.

If the FTSE is higher than the initial level at the end of year five then the plan would mature and return the original investment plus 37.5% growth.

If by the end of the 5th year the FTSE is still lower than the initial level at the beginning of year one then the plan would mature and the original investment would be returned (but with no growth).

A key question to ask with structured products is "who is providing the guarantee": Most of these products are underwritten by large institutions, high street banks in many cases.  However some are underwritten by smaller investment banks that may be financially less stable, though there would normally be recourse to the Financial Services Compensation Scheme if the worst did happen.