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Structured investment products (SIPs), or Structured Products, are tailored, packaged products often designed for institutional investors and adapted to achieve specific goals, risk exposure levels or returns.
The fixed-period nature of a structured investment product (SIP) is attractive as an alternative product with predetermined payoffs and optional capital protection. However, returns depend on the underlying asset’s performance or basket of assets.
As with many non-standard investment vehicles, multiple terms are used to describe products, the investment objective, and the direction of trade that will impact the final return.
Table of contents
- Accrual Structured Investment Products
- Accumulator Structured Investment Products
- Altiplano Structured Investment Products
- Annapurna Structured Investment Products
- Auto-call Structured Investment Products
- Barrier Reverse Convertible Structured Investment Products
- Call Overwriting Structured Investment Products
- CPPI Structured Investment Products
- Callable And Puttable Structured Investment Products
- Capital Protection With Knock-out Structured Investment Products
- Credit Default Structured Investment Products
- Digital Structured Investment Products
- Dual Currency Structured Investment Products
- Floater Structured Investment Products
- Himalaya Structured Investment Products
- Kilimanjaro Structured Investment Products
- Leverage Long And Short With Stop-Loss Structured Investment Products
- Leveraged Upside Structured Investment Products
- Range Structured Investment Products
- Reverse Convertible Structured Investment Products
- Spread Structured Investment Products
- Structured Deposits
- Target Return Structured Investment Products
- Twin-Win Structured Investment Products
- Wedding Cake Structured Investment Products
- Related Articles, Guides and Insights
- Questions or Comments?
Accrual Structured Investment Products
Accruals are yield-enhancement Structured Investment Products used to provide a stable income or grow the value of the invested capital. They are linked to market growth and pay out a coupon, like a fixed-rate bond, calculated against the days the underlying asset value remains stable within minimum and maximum thresholds.
The range is agreed upon at the outset and can be set at a barrier rate based on the strike price.
Investors receive coupons paid periodically or in one lump sum at the contract end date, normally with above-average returns.
Advantages include accumulating returns across a range of assets and the ability to adjust the range to recognise the likelihood of a projected market movement. Accrual SIPs are a viable investment option when low-interest rates are prevalent.
The downside is that the investor receives zero return if the market conditions do not move as expected and the asset value falls outside of the range.
Accumulator Structured Investment Products
An accumulator SIP offers investors options to purchase the linked asset at a discount against the spot price, with a knock-out that permits early redemption if the asset hits a trigger valuation.
If the investor leaves the accumulator SIP to run until maturity, and the asset closes under the strike price, leverage used to gear the product value means that the investor can purchase more than one unit, provided they have sufficient leverage available.
These SIPs are advantageous due to the discount on the asset spot price and because they allow investors to buy multiple units at maturity. However, there needs to be capital protection, and unfavourable movements may mean the investor gains their full original investment value.
Altiplano Structured Investment Products
An altiplano SIP includes capital protection and is ideal for a bull market, with growth linked to appreciation in the underlying asset’s value. Provided no asset within a linked basket of assets moves beyond a pre-agreed barrier below the original fixed price, the investor receives a yield on maturity.
If any asset within the basket does fall below the threshold, the investor still recovers their capital and any returns associated with the final performance of the total asset base.
The coupon rate can be well above average if markets rise. The assets increase in price, although in a volatile market, potential returns fall.
Annapurna Structured Investment Products
Investors use Annapurna SIPs with capital protection when rising markets mean the product could produce high returns, payable on maturity. As with altiplano SIPs, there is a reduced return available during market uncertainty.
The investment product pays out a maximum value, calculated between a fixed coupon rate and the original investment value, and how those valuations change from the original contract date until maturity.
Coupon and participation rates depend on the lowest performing asset within the underlying basket – and if that asset hits a barrier below the initial fixed price.
Auto-call Structured Investment Products
Auto-call SIPs can mature early and reach this stage whenever the underlying asset hits or passes a price level calculated against the original value. If the product is auto-called, the investor receives their returned capital and possibly a return.
Much depends on the specific product terms because an auto-call SIP that matures naturally will produce a pay-out based on the underlying asset’s performance either across the investment period or at maturity.
These SIPs have a moderate risk exposure and work best with flexible investment timeframes, with a higher return when annualised if the product is auto-called and provided the underlying asset appreciates well.
However, the return can be lower than that available through direct investment, depending on market conditions.
Barrier Reverse Convertible Structured Investment Products
This SIP is market-linked and provides a regular income stream or a coupon when the product reaches maturity. The investor receives their capital back if, over the investment term or at maturity, the underlying asset is at, or higher than, the agreed barrier, based on a rate above the original price.
If the asset breaches the price barrier, the SIP becomes a reverse convertible, which means the payout depends on the asset closing above the strike price.
The coupon return is also dependent on the asset price performance as a product best suited to investors who expect markets to move sideways and want to maximise their returns.
Where markets are stable or rising, there is a greater prospect of a full return, but the investor risks losing capital and can only receive a capped maximum profit.
Call Overwriting Structured Investment Products
Call overwriting is an investment strategy where investors produce returns by buying the underlying share or shares and selling a call option on the same asset simultaneously.
Any premiums achieved through trading call options can mitigate potential losses if the underlying. asset price falls. Still, capital is at risk, and this approach can be riskier where markets are consistently rising.
CPPI Structured Investment Products
A CPPI product (constant proportion portfolio insurance) provides protection against market downturns and acts like a direct investment in a rising market based on an underlying asset. Investors are exposed to the appreciation of the selected asset, with capital allocated between assets of varying risk.
That might include bonds and cash alongside equity, which means there is capital protection if prices fall. In a market sell-off, the funds allocated in cash or bonds mitigate the loss exposure linked to equities.
These SIPs work well for investors that wish to manage product volatility while still participating in upward market movements.
However, because some funds are allocated to risk-free or very low-risk assets, there is a reduced level of participation in rising markets since only a proportion of the capital will provide those higher returns.
Callable And Puttable Structured Investment Products
Callable SIPs can be redeemed by the issuing body, whereas puttable SIPs are redeemable by the investor. In either scenario, the price is determined by pre-agreed dates before maturity.
The investor receives a higher coupon rate for a callable SIP, whereas a puttable product means the investor has greater flexibility to exit the agreement and redeem the product early.
Investors opt for callable SIPs when they want to increase their interest returns and achieve above-market profits. A puttable SIP provides greater flexibility but a lower coupon.
Capital Protection With Knock-out Structured Investment Products
These SIPs provide full capital protection and allow investors to participate in price growth in the underlying asset, provided values do not exceed a pre-agreed threshold set at a level above the initial price.
If the asset breaches the barrier, the investor receives back their original capital and potentially a rebate where applicable. The capped return means there is a limited upside, but the investment is protected with minimal risk.
Credit Default Structured Investment Products
This market-linked income or growth product is based on the credit standing of the issuing body and the entity linked to the underlying asset, with a one-off coupon at maturity or regular returns at a fixed rate during the investment period.
Investors also receive their original capital back as long as there are no credit issues, such as payment defaults, restructures, or insolvency proceedings within the linked entity or the issuer.
Suppose the reference entity does default on any area of credit. In that case, the investor can risk losing all capital, so this product is suitable for investors who anticipate the underlying market to grow.
The biggest risk associated with a credit default SIP is that investors are exposed doubly to credit risk – if either the issuing body or the underlying entity defaults, they lose everything invested.
Digital Structured Investment Products
A digital SIP pays a fixed coupon rate provided the underlying asset hits or exceeds a threshold – otherwise, the investor receives no coupon.
Digital SIPs have a minimum guaranteed return on maturity or over the product lifetime, but there is also a maximum return agreed upon at the outset.
Dual Currency Structured Investment Products
These SIPs put capital at risk but provide a good potential upside based on the performance of a selected currency pair. The initial invested capital, and any returns, are made in the base currency.
These products are designed for investors with currency trading experience or who have confidence in how the denominations will move against each other.
These SIPs tend to have shorter terms and reach maturity faster. Still, there is the potential to make total losses since the currencies are converted at pre-agreed exchange rates and may prove less valuable at the end observation date.
Floater Structured Investment Products
Floater SIPs are designed to offer capital protection and are linked to markets or baskets of assets, paying investors a coupon. The coupon is calculated based on a fixed rate plus a reference rate, depending on the type of baseline asset.
Investment banks also set a capped maximum and minimum coupon from the outset, giving investors advance knowledge of the highest and lowest returns they might expect.
These SIPs are relatively similar to conventional deposit products but are structured products if there is a call feature the issuer can execute or a put option for the trader.
Invested capital is protected, and the product provides a pay-out, sometimes above general reference rates, but there is a limited potential for gains since the coupon is capped.
Himalaya Structured Investment Products
Another capital protection SIP, a Himalaya structured product, links growth to the underlying asset performance and provides a return based on the average returns of the highest-performing associated asset.
The issuer sets specific observation dates and records the returns at that point from initiation through to maturity. At the product end date, one underlying asset remains, with the performance added to returns in the final pay-off.
Suppose markets continue to rise on a continuous trajectory and all assets appreciate. In that case, there is the potential for an attractive pay-out, but in a volatile climate, returns could be minimal.
Kilimanjaro Structured Investment Products
Like Himalaya SIPs, this investment product is based on mountain range growth projections but differs because it considers both the best and the worst-performing assets at each observation date.
At maturity, the product returns the original capital plus a profit based on how the reference assets in the linked basket perform.
However, capital is at risk, and these SIPs only perform well and provide yields above average when markets are rising – there may be a minimum return.
Leverage Long And Short With Stop-Loss Structured Investment Products
Leveraged SIPs with a stop-loss feature are open-ended and speculative investment products that investors can use to take a long position when markets are expected to rise or a short in the opposite scenario.
There is no capital protection, but thresholds on mini futures can be set at a stop-loss level, either above the strike for a long position or below for shorts, with the potential to provide a return even if the asset or linked basket hits the barrier.
In a thriving market, these products can provide very high returns, and the stop-loss barrier can mean that the investor retains a residual value even if assets perform badly. The downside is that loss exposure is high, and total capital loss is possible.
Leveraged Upside Structured Investment Products
A leveraged upside SIP offers capital protection alongside participation in asset performance, gearing engagement in the underlying asset at a pre-set level, either with or without a cap depending on the issuing bank and the investor’s requirements.
In-built capital protection is effective, but only to a pre-agreed buffer level, and investors can be exposed to downside performance if the reference asset falls.
Depending on the product terms, capital may be at risk, and returns might be capped, but these vary between SIPs and can be tailored. The positives are that investors access geared exposure to potential upside performance and have an element of protection even if markets fall marginally.
Range Structured Investment Products
Range SIPs work by assessing how the underlying asset value has fluctuated over a pre-set period, with upper and lower range limits. If markets are stable, investors can opt for a range SIP and incorporate accrual features, with a coupon pay-out based on how long the linked asset or assets remain within the price range.
The coupon is paid out once on maturity or can be set up to provide regular payments throughout the period, with ranges and caps set at the beginning to account for the investor’s forecasts.
However, if the market conditions change or do not move as the investor anticipates, there may be zero return.
Reverse Convertible Structured Investment Products
A reverse convertible can be used as either an income or growth product and pays out a coupon on maturity or as a periodic income stream. Investors receive their full investment back, provided the asset or basket of assets closes equal to or above the original value.
Coupons are market-linked, and the possible full return where markets rise or remain stable is favourable. However, capital is at risk, potential profits are capped, and coupon pay-outs depend on how the linked asset performs.
The product works similarly to a stock or bond by placing a put option on a bond and can provide higher yields than conventional bonds over shorter maturity periods. There are two elements to the product – a debt instrument and a put option.
If the underlying asset is valued at the initial price or higher, the investor receives back all their capital. However, if the opposite occurs, they receive a calculated number of shares based on the original pricing and the amount invested. In this scenario, the investor makes a loss because the transferred shares are worth underneath the final market value.
Reverse convertible SIPs with a call feature can be higher risk because there is the potential for the issuer to exercise this option when the product provides higher yields than expected and interest rates are low.
Spread Structured Investment Products
These SIPs have limited risk if the underlying asset falls and capped upside outcomes if the markets appreciate. Investors can go long or short on either or call option based on short-term and long-term interest rates, depending on their expectations and knowledge of the markets.
One of the advantages is that a trader could generate a return by shorting a reference asset and gaining exposure to ongoing price drops, which isn’t an investment strategy that would work in equity trading.
Downsides include a limited profit depending on the range implemented and the risk that, over time, the SIP might not provide any return if interest rates remain static.
Structured deposits act more as a fixed-term savings product than an investment. Still, holders earn a return based on how the underlying asset performs, usually linked to an index.
Investors receive their capital back at maturity, with possible protection against issuer insolvency, which is not available through a structured investment product.
Target Return Structured Investment Products
This type of structured product uses a reference entity, such as a company or government, rather than a basket of assets, and a pre-set interest rate, often a swap rate or other basis.
Investors can generate returns through an unconditional coupon during the initial period, with fixed payouts. From there on, returns depend on how interest rates perform. If coupons are paid out to a pre-agreed cap, the issuing bank will auto-call the product when total returns reach parity, with options to implement full or partial capital protection.
Yields on target return SIPs can provide a profit above market averages. Still, the link to an underlying company or government bond adds an element of credit risk, and total possible returns are capped.
These SIPs work best for investors with a pre-determined return they expect to make on their capital investment.
Twin-Win Structured Investment Products
A twin-win SIP provides capital protection without limits on upside potential. It is normally designed for investors with a low-risk tolerance who want to engage in bull or bear markets without any requirement to generate periodic income through a coupon.
However, the low-risk nature of this structured product means that returns are likely to be lower than those available through direct investment when markets are rising.
The positive is that investors can earn a return when the value of the linked asset rises and when it falls, as long as those price fluctuations remain within the specified barriers.
Twin-win SIPs are a viable option for investors who are confident that the underlying asset will appreciate, where built-in leverage means they can participate in the upside at a higher proportion and without a price limitation.
Wedding Cake Structured Investment Products
These SIPs provide variable coupon rates, which rely on the price performance of the underlying asset, and how that compares to a predetermined valuation range. Broader ranges in a more volatile market reduce the return available.
If the underlying asset hits a price at the top or bottom of the range, the investor does not receive a coupon, although they receive back their invested capital.
This SIP can benefit from higher returns where markets are relatively flat. Still, equally, if the price hits an upper or lower barrier, the return is reduced, regardless of whether the market is rising.
Note that issuing banks only provide full capital protection if the investor retains the structured product until maturity.
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