Have you watched the movie Big Short? If you have, you will understand how structured finance works. They are full of complexities and meant to be complicated. Though the film focuses on real-life housing crash in 2008, you should know that not all structured products were made to fall. Considering India holds the largest stock exchange in Asia, there are all kinds of products available here. The choice also includes structured products as well.

What are structured products?

These are market-linked investments. Structured finance products combines traditional financial instruments like stocks and bonds with one or more elements that include derivatives. These are pre-packaged investment strategies. Some depend on options, commodities, currencies, a basket of securities, and more. Other follow different roles and responsibilities. There uniformity in these packages.

Can they be customised?

Yes. Precise why people prefer them and are popular amongst investors who hold high-risk appetite. These individuals seek high returns with some control on the amount from their side since they can customise the investment package.

Who can invest in them?

They are best for investors with a high-risk appetite. It allows them to benefit from the rising prices and maximise gains in the sideways market because their flexibility gives them some control over these risks. Falling markets are not a concern because the underlying assets enable investors to benefit from the failing market, such as a foreign exchange.

What are the benefits?

The best part about investing in structured investment products is they are tax-efficient and offers access to taxable investments, boosts return, reduces volatility, can provide returns in a flat market, protects principal, etc.

What are the risks involved?

Like other investments, investing in structured products in India includes certain risks. It is not easy to sell them as they are not liquid. If one can, it would have got sold at discounted rates. Also, the pricing is gained through a best-guess approach. This increases the risk for technical investors. They are incredibly complex, and this leaves room for error. It is challenging to decide the number versus scale between getting structured products and acquiring every element individually.

How do they work?

There are two kinds of structured products – deposits and investments. When you buy structured deposits, the funds get locked for a specific period for around five or six years. But as the product matures, you receive a lump sum amount. Investments, on the other hand, is where the amount gets locked for a while. Some offer lump sum at maturity based on the performance of the product.