STRUCTURE INVESTMENT PRODUCTS
Structured products are highly customized investments. You can use them to take a risk-adjusted exposure to conventional assets or diversify your portfolio by investing in assets that are otherwise difficult to access
Is your priority to grow your wealth, to protect your initial capital, or to receive a regular income from your investment? We certainly don't believe that 'one size fits all'.
At Madhuvan our wealth managers would provide investment solutions designed to meet each of these requirements.
These products protect a portion of the invested capital (up to 100%) and might offer some guarantees on investment performance. Capital protected products offer a defensive investment and might be an ideal way to invest in financial markets with little or no capital risk.
A standard Capital Protected Note consists of two parts. A bond part that guarantees investors the nominal amount at maturity and an option that allows investors to participate in a percentage of the upside price performance of the underlying security.
Choice of Capital Guarantee
- 100% of your invested capital
- Less than 100% (in this case investors will get a higher participation rate)
- Greater than 100% (to receive a minimum interest on the investment)
Choice of Participation Type
- Participation can vary according to the structure
- Different pay-offs are available
Price Behavior and Risk
On the secondary market, the price of the Capital Protected Note fluctuates in relation to the price of the underlying and the level of interest rates. Investors should be aware that the capital guarantee only applies at maturity. During the life of the product the price can be quoted at a discount (below 100% of its value).
Leverage products offer investors accelerated exposure to the underlying asset. Leverage products enable investors to participate on either side of the market benefiting from price increases Long products, Call Warrants, or Short products ,Put Warrants. Leveraged products are designed for self-directed active investors and have a high risk-return profile - as a result may not be suitable for inactive or conservative investors.
Reverse Exchangeable could give investor Yield Enhancement as that pays higher than average guaranteed coupons. This sometimes, may be 3 to 4 times higher than that on a conventional bond, to determine coupon payout the price of the underlying share is compared to the price set at the time of issue at regular interval monthly, quarterly, yearly or at maturity
Reverse Exchangeable offer two possible payouts at maturity:
If the price of the underlying share is above or equal to the reference price, each Reverse Exchangeable is redeemed in cash and for an amount corresponding to 100% of the nominal amount. The capital invested is therefore fully redeemed.
If the price of the underlying is below the reference price, investors receive units of the underlying. Investors can sell the underlying immediately and bear the loss (could have tax advantages) or keep it with hopes of future price recovery.
These instruments have gained popularity since, for one, they ensure protection to the principal amount invested even when the market slumps and, also, show good returns through the equity component when the market goes up. “Investors looking for capital protection, as well as returns linked to stock markets (Nifty), prefer such products,”
In simple terms, this is how a structured product works. If an investor invests Rs.100 in this product (let’s assume a 2-year maturity), Rs 84 will be allocated to debt and Rs 16 will be allocated to equity (Nifty). An 8% interest on the debt component of Rs 84 will give approximately Rs 16 as interest in 2 years, which ensures that the principal (Rs 100) is intact. If we assume that Rs 16 allocated to equity, doubles in two years, the investor will get Rs 32. Thus at the end of the term, the investor gets Rs 132—in other words, a 32% return on his investment. As a worst case scenario, if the Nifty were to go down, the yield on the debt component would still protect the capital.
While this is a simple structure, complex structures on the Nifty could be created to yield higher returns, depending on the risk taking appetite of the client and the tenure. The most popular among them are capital guaranteed products, which are offered to HNIs looking to invest upwards of Rs 20 lakh. Another typical structured product is a non-convertible debenture (NCD), which is issued by non-banking financial arms of Merrill Capital, Lehman Brothers and Citibank.
Derivatives & Structured Products
Our team provides structured risk management solutions for clients looking to manage their foreign currency and interest rate exposures. Our solutions range from basic to complex derivative products, and include the following:
Interest Rate Swaps (Rupee and foreign currency)
Cross Currency Swaps, including Principal Only Swaps, Coupon Only Swaps
Interest Rate Options including caps, floors, collars and digitals
Cross Currency Options
Structured Products involving a combination of the above
Through a combination of different derivatives, we also design Structured Products, enabling our clients to manage exposures and take advantage of developments in the interest rate and currency markets.