Profitable investment is a topic that does not lose its relevance. In this regard, various tools are constantly being formed that allow bringing income to a fundamentally new level. One of them is structured notes.
A bit about structured products
It should be understood that in the financial services market there are two large groups that compete among themselves, trying to attract the attention of customers. We are talking about banks and companies related to the stock market.
In recent years, banking institutions have been in a better position, so many investment companies have made a lot of efforts to create attractive new products that allow you to get high returns. The basis of active competition was the principles of the deposit, which ultimately led to the creation of structural products. It is this category that is defined as structured notes.
What is meant by this term? In fact, we are talking about a unique format for making profit, which makes it possible to manage key stock market instruments (deposits, bonds), as well as their derivatives (swaps, options, futures) at a fundamentally new level.
This is confirmed by the fact that the use of structured notes quite often leads to a 100% return on investment and even more. Obviously, this is a rather striking result, which minimizes the risk of loss of invested funds.
Bank deposits with such indicators cannot compete, respectively.
Trying to understand what structured (structural) 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.). Simply put, this is a mix of traditional ways of making profit, which, thanks to a skillful combination of standard schemes, allows you to get a new, much more effective way to increase profit.
Reliability
Like any product that is not quite familiar, structured notes can cause some distrust. In fact, there is no reason for such a reaction.
The bottom line is that the degree of protection of capital for investment products of this type can be defined as high. More specifically, it can provide guaranteed returns at the level of the Central Bank of Russia refinancing rate.
But structural products also have their limiting factors. One of them is their cost. The thing is that only wealthy people can use them, while others simply do not have enough money. The starting cost of such instruments starts at $ 10 thousand and can reach the level of half a million $.
The good news is that some of the major retail banks provide the opportunity to purchase structured products for prices starting at $ 3,000.
First structured note
We started using similar products back in 1969 on the American stock market, and since then they have undergone many changes. As for the Moscow Exchange, for the first time a group of FG BCS companies introduced a note to this market. It was defined as a structured credit bond.
The issue of such securities in Russia was not previously practiced. The new product involved binding 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. The nominal value of the product was 80 thousand rubles. The bond maturity date was set for April 2017.
Principle of operation
When an investor acquires a product such as a structured note, a bond, he connects his finances to a whole range of instruments. It will also be fair to say that the money is actually transferred to trust.
This process has a legal basis and is absolutely legal from the side of the law (order of the Federal Service for Financial Markets No. 07-37 / pz-n). At the same time, there is initially a certain level of profitability that the investor can count on.
The return on investment is guaranteed through the use of a proven scheme: the division of investments into two parts. The first and largest of them is invested in those instruments that have fixed income. It is this part by the end of the term that should bring 100% compensation. It can be used bonds with a high level of reliability or a bank deposit.
The second part is invested in highly profitable, but significantly more risky operations. What exactly is largely determined by the structure of the notes, but usually it is work with market volatility, a change in the stock index and other risky options that make it possible to obtain a significant increase in invested funds.
Thus, an investor acquiring structured notes can expect at least 100% compensation, and at best, 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 a full refund at the time the final payment is made. Moreover, this fact does not depend on how effective the assets underlying the product turned out to be. It should be understood that, in comparison with other types, this one is the least profitable, but the most reliable.
- Sheet music Phoenix. The structure of this tool makes it possible to receive monthly payments. Another convenient frequency is available (once a quarter or every six months). Due to such frequent payments, this type of notes can also not be called the most profitable, but on the other hand, the investor can withdraw his profit 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 required amount, which is automatically completed at the moment when the established threshold of profit is reached. Before that, withdrawing money will not work. After the completion of the process, the investor receives all the money and profit invested.
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 recall 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 which a significant increase in investment is achieved. This product does not offer guaranteed returns, nor does it offer stable coupon payments.
New structured notes include an instrument such as AutoCall. In the Russian market, it is becoming increasingly popular. It is based on the sale of volatility. In this case, high profit with a considerable level of risk is also considered as a priority. Under such a scheme, conditional capital protection is present, which largely depends on the dynamics of changes in quotations of key assets.
Investors also use the “digital” note. This product will be of interest to those who do not intend to tolerate significant risks and rely on moderate, but stable investment growth. At the same time, coupon payments remain available to the investor.
Summary
For those who tried to get an answer to the question “structured notes - what is it”, it will not be difficult to evaluate 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 offer, like notes, will continue to grow.