Financial Education | 10 July, 2018

How to invest in capital protected structured products?

Sergio García Head of Third-Party Products

Structured products are interesting investment solutions that help us build an investment vehicle that exactly matches our needs from combinations of different financial assets (fixed income, equities, derivatives, etc.) Its flexibility allows us to choose the term of the investment, the underlying assets, the currency, and of course, the level of risk that we want to assume, even delimiting the capital guarantee. Learn with the financial formation of BBVA in Switzerland, how to invest in funds protecting capital.

Thanks to the polyvalence of structured products, we can participate in the evolution of a share, a basket of shares, an index or even an investment fund that is of our interest, but in a more conservative way, guaranteeing the capital or a significant portion of such to maturity.

Recall that issuer risk is key in all structured products when it comes to understanding the product’s risks, since if it becomes insolvent, partial or even total losses of the invested capital may be incurred. Capital protection does not cover the investor for this type of risk.

The mechanism that gives rise to this structure is the combination of a fixed income instrument and the use of derivatives, in this case in particular, an option to buy or “call” that allows us to participate in the revaluation of the selected underlying asset.

Two alternative investment possibilities:

  1. You can protect 100% of the nominal amount invested and participate in a percentage of the return of said asset.
  2. Another option would be to choose a basket of assets that were of our interest and participate in the evolution of the one that performs best, the one that performs worst, or a weighted average of the returns of the same, always 100 % capital protection.

When the product matures, the issuer reimburses 100% of the nominal amount invested plus the agreed shareholding according to the product’s terms.

Flexibility and personalisation are the basic characteristics of structured products, which, together with the possibility of protecting capital, make them a very interesting solution for those investments interested in participating in the evolution of an underlying asset, but without risking their capital on maturity.