What are Structured Products?

Structured products are investments that provide the potential for investors to earn a return higher than traditional deposits. Structured products can provide returns that are linked to the performance of an underlying benchmark, such as equities, commodities, interest rates, foreign exchange rates, etc. The exposure to the underlying asset can be through individual securities, a basket of securities or market indices.

In comparison, a traditional investment in shares provides an investor the opportunity to earn an income through dividend payments and capital growth through a rise in the share price. If the view was that equity markets were to remain flat for the next 3 years, a structured product can be designed to perform when the underlying asset price was to remain flat or even fall slightly. This can assist an investor achieve greater portfolio diversification, as this part of the portfolio will perform well in certain market conditions. In the case of a strong bullish market, a structured product may under perform a direct investment in the underlying asset.

Most structured products offer capital protection^* when held until maturity. As the value of capital protection^* is determined by the creditworthiness of the issuer, it is important to ensure that the issuer is of sufficient credit quality. Please note that while capital protected structured products protects a portion (up to 100%) of your invested capital, the returns are not guaranteed.

HSBC continually reviews investment strategies from around the world. We choose the best of these strategies based on the risk / reward trade-off and our research on the future expectations of the underlying asset. Structured products are then specifically tailored to best serve the needs of our clients and take advantage of certain market conditions.

When you invest in a term deposit, you earn a fixed interest return and at maturity you receive your principal and interest. For a structured product, a portion of your invested money is placed in a security called a zero coupon bond. A zero coupon bond is a bond where no interest payments are made.

Imagine you invest $80 in a zero coupon bond that matures at $100 in five years time. If your initial investment amount was $100, then this portion of your invested funds represents the capital protection^* of a structured product.

The difference (in this example, $20) is used to purchase an option or series of options on the underlying asset(s). The investor receives a variable return (which is derived from the option return) depending on the performance of the underlying asset plus principal repayment at maturity.