Capital Protection with Leveraged Participation
Structured products with capital protection and participation usually offer a guaranteed repayment of the principal amount invested in the certificate (only at the maturity date), as well as an option to participate in the price growth of the underlying instrument. However, in view of capital protection, the level of possible participation in growth is usually lower when a standard purchase of the underlying asset occurs.
-Participation function: investors can generate income from the underlying asset growth (a certain percentage of the underlying asset price growth, which the investor may receive, is usually determined);
-Capital protection: return of funds invested in the certificate upon repayment.
The terms and conditions for return of the invested funds by the investor may be the following ones:
For example, there is a structured product based on Novartis N shares and the following terms and conditions for the certificate are specified: 100% capital redemption policy and 50% factor of participation in the underlying instrument growth. Thus, if you hold this certificate until the maturity date, you will in any case be refunded an amount equal to the amount of the invested capital, even if Novartis shares fall by 40%. At the same time, you will participate in the increase in the Novartis share price, albeit at a rate of 50 percent. That is, if the shares were worth 60 Swiss francs at the time of purchase of the certificate and were valued at 66 Swiss francs at the maturity date (i. e. with a 10 percent grow), you would receive a 5 percent income from your investments.
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