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Structured products with coupon payout

The potential profit is fixed and is set automatically depending on the product’s parameters and the feasibility of any outcome expected by the investor.

To receive the maximum profit, the price must touch the level set by the investor before the structured product’s expiration. This product differs in that a coupon is available. This coupon gives the investor the right to receive part of the profit which is paid if the price doesn’t reach the set level, but is in a range between the purchase price of the product and the forecast price. If the movement of the price does not correspond to that of the forecast, the client receives the investment sum, taking into account the capital protection level.

Product with coupon payout

To invest in this type of product, a price level which the base asset must touch before the structured product reaches maturity needs to be set.

Forecast for increase in price

140 USD
130 USD

Let’s say that the price of Apple shares is 130 USD. The investor believes that, over the course of 2 months, the price will touch 140 USD. The investor sets the capital protection level at 95%. When these parameters are set, an automatic calculation of the minimum investment amount and potential return takes place. In this case, the minimum investment amount is 10,000 USD, the maximum return is 44% and the coupon is 7% of the capital protection level.

  • If the price of the shares touches 140 USD (becomes equal to or above 140 USD) before the product matures, the investor will receive their invested capital back, plus a return of 10,000 x 44% / 12 x 2 = 733.33 USD.
  • If the structured product remains in the 130-140 USD range at maturity, the investor will receive 95% of their invested capital back, plus a coupon which totals 9,500 x 7% / 12 x 2 = 110.83 USD.
  • If the price at maturity is less than 130 USD, the investor will receive 95% of their invested capital back.

Forecast for decrease in price

50 USD
30 USD

Let’s say that the price of Microsoft shares is 50 USD. The investor reckons that, over a period of 6 months, the price will touch 35 USD. The investor sets the capital protection level at 90%, meaning that, by the end of the investment period, the investor will receive no less than 90% of their invested funds.

Under these conditions, the minimum investment amount is 5,000 USD, the maximum return is 52% and the coupon is 9% of the capital protection level.

  • If the price of the shares drops to 35 USD (becomes equal to or below 35 USD) before the product matures, the investor will receive their invested capital back, plus a return of 5,000 x 52% / 12 x 6 = 1,300 USD.
  • If the structured product remains in the 35-50 USD range at maturity, the investor will receive 90% of their invested capital back, plus a coupon which totals 4,500 x 9% / 12 x 6 = 202.5 USD.
  • If the investor’s forecast doesn’t pan out and the price of the asset begins to rise, the investor will receive 90% of their invested capital back.

How do the parameters affect the return and the size of the coupon?

By setting different parameters for the capital protection level and the investment duration, you can change the minimum investment amount, the return and the coupon size.

What will happen If the capital protection level is set at 80%?

Reducing the capital protection level leads to a reduction in the minimum cost of the structured product. The potential return increases, but the risks also increase.

For example, if the client reckons that the price of Apple shares will rise, then the following scenarios are possible:

  • By setting the capital protection level at 95%, the investor will invest no less than 10,000 USD. The return for this is 44% and the coupon payout is 7%.
  • By choosing a capital protection level of 80%, the investor needs to invest a minimum of 4,500 USD, giving a maximum return of up to 90% and a coupon payout of up to 15%.
160 USD
150 USD
140 USD
130 USD
  • Specified price level
  • Price movement before investment period
  • Price movement durring investment period
  • Investment period

What will happen If the capital protection level is set at 100%?

Increasing the capital protection level increases the minimum cost of the structured product. This leads to a reduction in the potential return, but the risks also decrease. Investors do not have to worry about their funds when setting the capital protection level at 100%.

For example, if the investor needs to invest a minimum of 10,000 USD when setting the capital protection level at 95%, by setting the capital protection level at 100%, they need to invest at least 20,000 USD. The previous potential return of 44% reduces to up to 22% and the coupon falls from 7% to 3%.

How does the choice affect the product’s return?

If the price level which should be touched is set close to the current price of the asset, the return will not be high. By setting the price level that needs to be touched further from the current price, potential return will increase.

How does the duration affect the product’s return?

By choosing a maturity date that is far away, the likelihood of different events taking place increases, leading to a growth in the cost of the risk part of the structured product. Thus, the later the maturity date is set on the product, the smaller the return.The optimum investment duration is from 6 to 18 months

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FAQs

Here are some of the questions we get asked most often about structured products:

For more, please see our entire list of structured product FAQs.

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Attention:

  • The examples above are meant only to show how structured products work. The returns earned in the examples should not be construed as a guarantee of profits.
  • You may purchase structured products denominated in Russian rubles and US dollars.
  • The commission charged for investing in a structured product is 2% of the asset value. Commission is deducted at product maturity.
  • Potential return is expressed as a per annum percentage.
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