The Ultimate Guide to Structured Products
Learn everything you need to know about structured products, how they are created and launched,
how they differ from ETFs and other investment vehicles, and the key factors to consider when selecting them.
Sections
- What Are Structured Products?
- Common Features of Structured Products
- How Are Structured Products Launched?
- Example of a Structured Product
- Key Considerations When Investing in Structured Products
- Structured Products vs. ETFs and Other Investment
- Role of Structured Products in a Portfolio
- When Are Structured Products Useful?
- Role of Index Providers in Structured Products
What Are Structured Products?
Structured products are custom-built financial instruments that combine traditional investments like bonds with derivatives to create tailored investment outcomes. They're often used by investors seeking a specific return profile, like downside protection, income, or leveraged exposure to a certain market or asset class.
Common Features of Structured Products
| Feature | What It Means |
|---|---|
| Underlying asset | What the product is linked to (e.g., index, stock, interest rates) |
| Term | How long it lasts (usually 1–5 years) |
| Payout rules | Conditions under which you make or lose money |
| Protection level | Whether your principal is protected if markets fall |
| Issuer | The financial institution that creates and guarantees the product |
How Are Structured Products Launched?
Design Phase:
A bank or asset manager identifies investor demand, for example, protection with upside exposure.
Structuring & Pricing:
Quant teams calculate risk/reward using live market data.
Regulatory & Legal:
Product gets approval, and a prospectus or KID (Key Information Document) is created.
Distribution:
Offered through wealth managers, private banks, institutional desks, or online platforms.
Lifecycle Management:
Investors receive updates, performance tracking, and returns at maturity.
Example of a Structured Product
"3-Year Autocallable Note Linked to the Euro Stoxx 50"
If the index stays above 95% of its initial value at set dates, the investor receives 8% annually.
If it drops below 60%, investors may lose a portion of principal.
If market conditions are favorable, the product may “autocall” and pay out early.
Key Considerations When Investing in Structured Products
Risk vs. Return Profile:
Structured products can offer downside protection, but may cap upside.
Some are capital protected, others are not. Read the fine print.
Liquidity:
Most structured products aren’t traded on exchanges.
Investors may be locked in until maturity or face exit penalties.
Credit Risk:
Your returns and principal depend on the creditworthiness of the issuing bank.
Complexity & Transparency:
The payoff structures can be difficult to understand, even for experienced investors.
Always demand clear term sheets or illustrations.
Tax Treatment:
Taxation varies by product type and jurisdiction.
Some may be treated as income, others as capital gains.
Fees & Costs:
May include embedded costs for structuring, distribution, and derivatives.
Unlike ETFs, fees are not always transparent.
Structured Products vs. ETFs and Other Investment Vehicles
| Feature | Structured Products | ETFs | Mutual Funds | Direct Stock Investing |
|---|---|---|---|---|
| Customization | Highly customizable | Pre-packaged | Pre-packaged | Fully |
| Downside Protection | Sometimes | No | No | No |
| Liquidity | Limited (usually held to maturity) | Daily | Daily | Immediate |
| Transparency | Often complex | High | Moderate | High |
| Fees | Embedded/opaque | Low & clear | Higher | Low (broker fees only) |
| Market Access | Flexible (indices, themes, volatility) | Broad | Broad | Depends on stock selection |
| Risk | Varies based on design | Market-driven | Market-driven | Company-specific |
| Who Uses It? | Sophisticated/goal-based investors | Broad retail & institutions | Retail, pensions | DIY or active investors |
Role of Structured Products in a Portfolio
Structured products are not meant to replace traditional investments like stocks or ETFs, but rather to complement them. Their unique structure allows investors to target specific outcomes that aren’t always achievable through conventional assets.
Here’s how they fit into a broader portfolio strategy:
Diversification
Structured products offer access to non-traditional return profiles that behave differently from standard assets.
Non-linear returns:
Unlike stocks or ETFs, structured products can deliver returns only under certain market conditions.Multi-asset exposure:
They can be linked to equities, interest rates, currencies, commodities, or even custom indices.Custom thematics:
Products can track ESG indices, volatility strategies, or niche sectors, broadening portfolio exposure beyond mainstream benchmarks.
Portfolio Benefit: Reduces correlation with traditional equity or bond investments, helping to smooth overall performance.
Yield Enhancement
In a low-interest-rate or volatile environment, structured products can offer attractive income opportunities, especially when traditional bonds and savings accounts yield little.
Autocallables and reverse convertibles provide enhanced yields by taking on market risk (e.g., linked to an index or basket of stocks).
Investors get paid higher coupon rates for accepting predefined risks, such as a loss if a barrier is breached.
Portfolio Benefit: Generates additional income that may outperform traditional fixed income incertain scenarios.
Capital Preservation
Some structured products are designed to protect your principal, even if markets fall, a key concern for conservative investors.
Capital-protected notes use zero-coupon bonds to ensure you get your money back at maturity.
Buffered products or barrier notes offer partial protection (e.g., you only lose if the underlying falls more than 30%).
Portfolio Benefit: Offers downside protection while still participating in market upside, ideal for risk-managed growth or wealth preservation goals.
When Are Structured Products Useful?
Structured products are particularly relevant when:
You have defined investment goals
You want to target specific market scenarios (e.g., flat markets, mild growth, low volatility).
You are looking for a middle ground between equity risk and cash conservatism.
Role of Index Providers in Structured Products
Index providers play a critical role in enabling structured products.
Index Licensing & Design:
Banks often use custom indices designed by index providers like Index One as the underlying for structured products. These indices may include ESG filters, volatility overlays, or smart beta strategies.
Live Index Calculation:
Index One provides real-time index calculation services, ensuring accurate, up-to-date pricing that structured product issuers can rely on for valuation and performance tracking.
Integration & Distribution:
Index One integrates with platforms like Refinitiv, Alphathena, and Stratifi, making index data easily accessible for use in structuring and marketing new products.
Data Delivery & Reporting:
Structured product issuers need clean, reliable data for term sheets, marketing, and client reporting. Index One delivers daily index files, fact sheets, and back-tested performance to meet these needs.
Public Index Catalog:
Index One's public index library aggregates hundreds of strategies that represent diverse exposures across sectors, asset classes, and themes, offering a broad menu of ideas for structuring new investment solutions.
Commonly Used Terms
Bonds
Bonds
Debt instruments issued by governments or companies to raise capital. Investors lend money in exchange for regular interest payments and the return of principal at maturity.
Derivatives
Derivatives
Financial contracts whose value is derived from the performance of an underlying asset, such as stocks, bonds, interest rates, or currencies.
Options
Options
A type of derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price before or on a certain date.
Risk/Reward
Risk/Reward
The balance between the potential risk of losing capital and the potential return on an investment. Higher returns generally involve higher risks.
Key Information Document (KID)
Key Information Document (KID)
A standardized disclosure document required in the EU for packaged retail investment and insurance products (PRIIPs). It summarizes essential product features, risks, costs, and performance scenarios.
Downside Protection
Downside Protection
A feature that limits an investor's potential losses, often by guaranteeing part or all of the invested capital if the underlying asset performs poorly.
Liquidity
Liquidity
The ease with which an asset can be bought or sold in the market without significantly affecting its price. High liquidity means the asset can be quickly converted to cash.
Autocallables
Autocallables
Structured products that can automatically redeem early if the underlying asset meets certain performance conditions on preset observation dates, typically paying a fixed return if triggered.
Reverse Convertibles
Reverse Convertibles
Yield-enhancing structured products that pay high interest but may repay in shares of the underlying asset instead of cash if the asset falls below a specified level.
Capital-Protected Notes
Capital-Protected Notes
Structured products that guarantee the full or partial return of the initial investment at maturity, while offering upside potential linked to an underlying asset.
Zero-Coupon Bonds
Zero-Coupon Bonds
Bonds that do not pay periodic interest. They are issued at a discount to face value and pay the full amount at maturity, with the difference representing the investor’s return.
Buffered Products
Buffered Products
Structured notes that provide partial downside protection by absorbing a fixed percentage of losses in the underlying asset, after which the investor bears the remaining loss.
Barrier Notes
Barrier Notes
Structured products that include performance thresholds (barriers). The payoff depends on whether the underlying asset crosses certain price levels during the life of the product.
Maturity
Maturity
The date on which a financial product or investment ends and the principal is repaid, along with any final interest or return due.