Advantages of Structured Products

Those new to investing may not be aware of structured products and the fact that their broker may require them to complete a risk disclaimer before they can trade them may set the alarm bells clanging.

As with any investment it is important that you fully understand and are fully comfortable with the risks associated with it and that you take advice where you are in any doubt.

However, hereunder are some of the key features of structured products that may suggest them to you as a suitable investment; but with such a wide range of different products available it is imperative that you fully understand the rules associated with a particular product before making an investment.

• Returns

With interest rates remaining low, stock markets volatile and investment grade bonds and gilts expensive, returns available on structured products can be attractive.

• Choice

A wide range of structured products are available based on the FTSE 100 or other indices and offering returns based upon different parameters and over different time horizons.

Some pay income on an annual basis as long at the targets of the product are met whereas others pay out at the end of the term.

The level of risk also varies depending on the underlying index so it should be possible for you to find structured products that reflect your appetite for risk and payback periods that reflect your financial objectives.

• Capital Protection

Structured deposits are ‘capital protected’; structured investments are ‘capital at risk’ although there may be some downside protection.

• Downside protection

Many structured products offer downside protection, for example, investors’ capital will only be at risk if the chosen index falls by more than 50% and losses are then prorated to the level of the fall in the index.

• Tax

Structured products may be sheltered from tax in either an ISA or a SIPP wrapper.

If not protected, returns from a structured deposit are likely to attract Income Tax, whereas returns from a structured investment may be treated as a capital gain and subject to capital gains tax (CGT), meaning that investors can use their allowance of £11,100 (tax year 2015 – 16) to shelter profits.

Any gains above that allowance are taxed at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers.