STRUCTURED INVESTMENTS

Structured investments now form a significant part of overall UK investments.

They are offered regularly for limited offer periods, and the plans offer a hugely diverse range of investment terms, but most share similar characteristics.

WHAT ARE THEY?

They typically provide growth or income over a fixed term, with the capital return at the end of the term being dependant on the performance of one or more stock market indexes (usually the FTSE 100 Index, the main UK stock market index). For example, a plan may provide x% income per year for 5 years, with capital returned in full if the FTSE 100 Index does not fall by more than y% during the term of the investment. If it does fall by more than y%, then the return of capital is not secure and can be reduced.

HOW DO THEY WORK?

All structured product investment work in a similar way, and have two components:-

(a) The protection part to provide the capital protection. This is usually in the form of a bond issued by an institution (the counterparty), which promises to pay back a set amount on a future date.

(b) The growth or income part which aims to provide the growth or income on your investment, and this part will usually involve derivatives in the form of options to try to provide high returns.

THE MAIN CATEGORIES

Structured Deposits are effectively deposit accounts, but instead of receiving a rate of interest they provide a set income or pre-determined growth over a selected term, whilst designed to return the capital invested at the end of the term. Such investments potentially benefit from the Financial Services Compensation Scheme (FSCS) protection afforded to deposit takers should the issuer fail.

Capital Protected Structured Investments aim to provide a pre-determined return over the term of the investment with full capital returned at maturity, but will not benefit from FSCS protection should the counterparty fail (see below).

Capital At Risk Structured Investments can give rise to a loss at maturity if the underlying investment performs poorly but typically incorporate a barrier which protects capital other than in the event of the stock market falling by say 50%. Again, these are not normally covered by the FSCS should the counterparty fail. 

WHAT'S THE ATTRACTION?

The main attraction is that these investments can aim to provide a pre-determined level of income, or a pre-determined rate of growth, over a set term, with the aim of providing a return of capital at the maturity date assuming the selected index is at or above a pre-determined level. They can often provide returns well in excess of deposits or low risk investments.

They can be useful for investors who are seeking a selected level of income or growth over a selected term.

WHAT ARE THE DRAWBACKS?

Very few investments can guarantee high returns with no risk, and structured investments are no different. They are by no means for everyone and should be considered only as part of an overall investment portfolio.

The main drawbacks are:-

• With this sort of investment, you are not investing directly into a stock market index - you money is being used to buy securities which are designed to generate the plan returns. The quality of the issuer of the security is paramount since you are relying on this issuer to provide the returns. If the issuer cannot meet its obligations you may not be entitled to compensation from the FSCS as it is an "investment risk" taken. The relative merits of the strength of the issuing organisations can to some extent be measured by comparing their "credit rating" by rating agencies such as Standard & Poor's or Moody's or Fitch.
• They are NOT therefore guaranteed investments.
• The investments are normally fixed term plans with little access during the term.
• The returns are normally dependant on the performance of a particular Index (for example the FTSE 100 Index) so your capital return can be less than the amount you invested.

A BRIEF GUIDE TO STRUCTURED INVESTMENTS

There are other facts you need to know about these investments, so why not request our "Brief Guide To Structured Investments" which explains what they are in more detail, what the advantages and disadvantages are, who they are suitable for and who not.

We can also provide details of currently available investments.

Contact us on 0121 745 3211 or jspfs@tiscali.co.uk

NOTE: The above is a very brief description only, not designed to provide recommendations. It is important that you read full plan details carefully so that you understand how the investment works. If you do not understand, ask questions. If you still do not understand, then you should not invest. Such plans are fixed term investments often without early encashment options and are not for the risk averse. As explained, they are not guaranteed investments.