Written by Laura Badune
In our previous articles we have looked at parameters and features of basic structured products, tips and tricks when choosing or designing one as well as common misconceptions when it comes to this type of investment.
One of the most popular questions and objections I come across when it comes to choosing the parameters for my client’s structures is timeframe of the investment. Even with capital that has been set aside to generate interest for next 10/20 years, no-one really seems to want the money to be locked away for too long. After all, not having the option to use the hard earned cash on a rainy day ruins the whole reason of having savings in the first place. A natural question that follows is “Have you really locked your money away for a good number of years once invested in a Structured Product?”
Each product that is issued has a fixed term of duration. Most of the current structures you can see on our menu have been optimised to give best returns for the investor and therefore are set to run for 5 – 6 years.
The beauty of a Structured Product, however, is that these types of investments are fully customizable to meet the needs of each individual investor. This way the term can be agreed on and other parameters set to tailor an investment that meets the expectations of investor. I’m a firm believer of a no one-size-fits all policy, and it also includes investment types and structures. Some notes would work better at a shorter tenure while others are best to be built for longer term strategies.
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Even if the note is fixed to run for a period longer than desired, there is still a way out! The following two options are the most common ones for receiving your cash back before the maturity of your chosen investment. One is determined by the issuer, another is your choice.
First, let’s look at an Autocall event. Notes that have an Autocall trigger feature structured in have a chance to be redeemed early. Simply, if on any of the given Autocall observation dates all the underlying assets are above the Autocall level, the investment matures, and capital is returned to investor.
The trick here is to have the assets fixed at an advantageous level, namely, when they have a higher likelihood to increase in value rather than decline. This way an option for early maturity of investment is more likely.
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Another option for you to get your capital back is to simply sell the investment. Structured Products are daily liquid and you don’t need to find a buyer for it. If you decide to sell your investment, a simple dealing instruction sent to your bank or platform provider would suffice. You can also sell part of your investment, leaving the rest of the capital in the product to keep reaping the benefits. It is important to note, however, that in this case your investment would be sold at a market value which could be favourable, therefore earning you some extra profit on the price increase, or lower than the value your investment was purchased.
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All in all, whichever path you decide to take, rely on an early maturity, opt in for a shorter tenure structure while sacrificing a bit of potential returns, or have a plan B in the pocket, to sell the investment should the need arise, the choice is all yours.
In the world of Structured Products, options and opportunities are nearly endless and everyone can find a structure that meets their needs and investment appetite, and is aligned with your financial goals and timeline.