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Structured plans in your investment portfolio

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WHAT'S in a name?

 

That which we call a rose by any other name would smell as sweet." That might be true for Juliet in Shakespeare's famous play but definitely not for the structured products industry, which has seen the name of structured products much tainted by the 2008 crisis.
Post 2008, structured products as an asset has been misunderstood by many investors as dangerous and highly risky.

With investor education and today's search for yield amidst highly volatile markets, structured products are increasingly being included as part of one's portfolio.


Overall in Asia, demand in the structured products industry can be likened to a deep `V', with the trough being the period right after the 2008 crisis. Since then, demand has been steadily increasing. The issuance of structured products has doubled this year, compared with 2008 and 2009, and increased 30 per cent from 2010. Trends and opportunities in structured products: As investors look to increase returns in today's low-yield environment, structured products are offering value to investors who know how to use it, in helping generate targeted returns and reducing risk exposure as part of a diversified asset allocation portfolio strategy.

The trend, however, has been moving towards the return to simplicity and a growing demand for bespoke products. We explore some of these trends below, as well as shed light on how investors can better understand and use them in their investment journey.


A growing demand for bespoke products: As investors spoke products: As investors continue to look for products tailored to their investment needs, structured products provide them with a platform to customise their exposure to a range of asset classes as the underlying to meet their expected return, risk appetite, and tenure of their investment.

 

Fixed coupon notes linked to a single or basket of equities have also been popular with investors attracted by the unconditional coupon in the mist of market uncertainty. These notes provide investors with regular income and allow them to get equity exposure for any upside potential.
The return to simplicity: With investors wary of complex structures post Lehman, there has been a demand for simplicity in the way products are structured. This explains why simple structures such as interest rated-linked callable range accrual notes with principal protection are popular with investors, especially since they provide better yields than deposit rates for cash-surplus investors who believe the underlying(s) staying at the pre-defined price range.

At the end of the day, besides offering simple structures, it is critical to ensure that investors understand the products they are investing in. For instance, even when providing yield enhancements for flat markets with simple structures (which commonly see a short-put strategy linked to a single underling such as ELNs), it is still important to adapt and explain our of ferings to meet the needs of nervous investors.

Capital protection:

As a result of uncertain market conditions, there continues to be a strong interest in capital-protected products. Investors seek products that allow them the opportunity to tap on a re bound in the underlying markets, while offering downside protection.

The mitigation of issuer risk is also key to the demand for structured products.

Seizing opportunities in the structured products space: It is important for investors to understand the movements of the underlying product and enter into these structures at the appropriate time. Having an understanding of what uying into as an underlying is, they are buying into as an underlying is, therefore, crucial in helping savvy investors to seize opportunities in these markets with the use of structured products.

Overall, we continue to see a healthy demand for structured products, especially in these volatile times when investors seek products that can help them ride a rebound and protect against the downside.

Happy Investing!!

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

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These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

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