Anyone looking to make money through investment can soon realise just how many different options are available to them – and this can sometimes be daunting. One of these options is a structured investment product, which is one of the less risky methods of enjoying a profit when you put money into the stock market.
A Structured Investment Product Explained
A structured investment product will run for a fixed term, usually somewhere between three and six years. Rather than simply pouring all of your funds into one investment (or indeed, all of your eggs into one basket), a structured investment product instead splits your fund in two.
The majority of your capital is taken by the counter party, or the institution that you are investing your original money with, and used to secure the whole capital amount. So as an example, 85% of your capital may be used in order to build back up so that it turns back into the original 100% amount – invest £10,000 and £8,500 of that will be used solely with the intention of being turned back into £10,000, ensuring your money is protected.
The remainder of your money is invested, and will be tied to the performance of the stock market, so it may see you earn huge profits or it may suffer if the market has a negative period. Often it’ll be tied to the FTSE 100 Index but it may be another commodity instead.
Drawbacks of a Structured Investment Product
The whole point of a structured investment product is that you’re setting aside a majority of your capital for security, and so this isn’t going to enjoy any Index success. If the market performs well, you won’t see as much profit as if you’d invested the whole amount.
Also your capital is tied to the success of your deposit taker or counter party – so if something bad happens to that company, you could lose your capital. They need to remain solvent in order for you to get your money back at maturity. However if the worst did happen, you may be entitled to some compensation from the Financial Services Compensation Scheme (FSCS).
Finally there is the risk of inflation – you might receive back your original money that you invested but this could be a reduction of capital if inflation has taken off during the course of your plan. It’s a low risk, but it’s worth being aware of.
Interested in a Structured Investment Product?
There are many different plans available so you need to carefully consider all of your options before deciding if a structured investment product is right for you, and which one you want to opt for. Our page on structured investment plans is an excellent first step.