The term “Structured Notes” is often thrown around in financial circles, or you may have heard it while speaking with your financial advisor. What is it actually?
Without getting into the technical details, the typical structured note sold in Asia is a financial asset (like a bond or stock) whereby the risk & return behaviour may mimic a bond when the product is performing well and conversely, it behaves like a stock when the product is performing poorly. Structured notes are commonly sold in banks in Asia, especially to service affluent and high net worth investors. In the retail or consumer banking space, it’s usually termed as “Structured Deposits.”
A structured note can be customisable in many different ways depending on the investor’s preference and risk profile. Think of it like a do-it-yourself pizza where you can put whatever components (called the underlying) you fancy. Depending on what your taste preference may be and who the pizza chef is, the pizza will be priced (the strike price or the coupon) differently.
The final payout of your structured product investment is dependent on the performance of some underlying instruments.
If there’s one thing to know about structured products (or investments in general) is that there is no such thing as a free lunch. For every seemingly good “benefit” that you are receiving, know that there’s also an equal amount of risk you are taking at any particular given point of time.
At the end of the day, it’s never a question of whether this structured product is good or bad, but whether the risk/reward factors are aligned with you and your views.