Structured products of banks

To attract customers, banks come up with a lot of marketing moves. One of them is investing in structured products. They are positioned as a panacea in the financial market. Are these tools really profitable or is it another financial pyramid?

The Essence

Structured products are tools that must protect the initial investment, and bring profit from the growth of assets. The uniqueness of the product lies in the combination of tools that allow you to limit the risk of investment.

In conditions of financial instability, investing money in currency is dangerous because of a sharp change in the exchange rate, and it is difficult for the stock market because of high volatility. The situation is complicated by the fact that you need not only to save, but also to increase capital. The solution to the problem can be an investment in structural products that combine a high degree of asset protection and the ability to generate profits more than a deposit.

The market of structural products includes:

• Deposits;
• securities;
• Trading on Forex;
• Bank metals;
• Options and futures;
• Mutual funds;
• Investment in real estate, etc.

The structural product is formed by combining assets with different levels of risk:

• Deposits and shares;
• Central Bank of highly reliable and new companies;
• Bonds and options;
• Deposits and accumulative insurance, etc.

The ratio is chosen so that the income from "reliable" assets covers possible losses.

Example

The structural product consists of 90% of the deposit with a yield of 10% per annum and 10% of the shares of new companies with a yield of 300%. After buying a product, three options are possible.

If the shares are burned, the interest on the deposit will compensate for the initial investment. In a year the client will receive the same amount that he invested, without profit, but without losses. If investments in the Central Bank bring the projected 300%, then the total return on the portfolio will be 40%. If the investment will bring 2/3 of the planned profit, then the product's profitability will be 30%, etc. That is, the selected shares play the key role, and without risky investments serve as a loss insurance.

Subjects

Structured products in the financial market are offered by banks, dealing centers and AMC. The most reliable products are banks. In AMC, you can select assets for "any taste": from conservative to more risky. Portfolio investments of dealing centers are formed at the expense of risky and super-risk assets (for example, currencies and options).

The purchase of an asset is accompanied by the signing of an agreement between the investor and the company. It clearly stipulated the amount, the term of investments, the list of assets, the level of risk and other moments associated with the transfer of funds.

Scheme of work

Wishing to save and increase temporarily free funds, individuals apply to a bank or an investment company and acquire a structural product. Part of the funds invested by the intermediary invests in reliable financial instruments (bills of exchange, bonds, deposits), and the second - in the asset tied to the base (shares, currency), but less volatile (Sberbank shares, gold rate, RTS index, etc.). . The client himself chooses the underlying asset and the level of risk, that is, the specific weight of the investments that will be redirected to the stock market. The client also independently regulates the participation ratio (CG), that is, determines what part of the future income it will receive.

The investment period is from several months to two years. Additionally, you can insure your investments or purchase an investment portfolio with coupon income. In the second case, the client will receive a fixed monthly profit amount, which is independent of the price change of the underlying asset.

Types of structural products

All package proposals are divided into two groups:

• Risk-free products guarantee the return of 100% of capital. The biggest risk is that by the time the investment returns, the investor can only receive the initial investment, subject to a small degree of depreciation due to inflation. The client pays only for the opportunity to make a profit if all the assets work.
• Products with limited risk. The share of assets is distributed in such a way as to cover a possible loss. An investor can lose only a portion of the capital. With a good market situation, the level of earnings can reach 50% of the initial investment.

Benefits

• Structural products of the Savings Bank or any other credit institution is a passive investment. The client does not independently form a portfolio of assets. The financial intermediary performs this work for him.
• There is no need for knowledge and experience in working with financial instruments.
• There is an opportunity to regulate the level of losses from investments and invest in assets that are not available in pure form.
• The structural properties of the product are such that the purchase of at least one of them means diversification of investments.
• With good market dynamics, the investor gets a big profit with little risk.

disadvantages

• Structured financial products are positioned in the market as something complex. In fact, this is a paid consultation on the placement of funds in different assets.
• Even banks can not guarantee a 100% guarantee of a refund. All deposits are insured in the DIA. The probability of loss exists always. The only question is the level of risk. This marketing slogan is designed only for advertising.
• Structural products of banks, for which no profit is obtained, are unprofitable. This means that interest on deposits was directed to cover losses from other types of investment. If the customer immediately put the entire amount of money into a bank deposit, he would have received more profit than from a unique product.
• Structured products are calculated for well-off customers. Feedback from users is confirmed. Enter the financial market with the amount of 10 thousand rubles. Does not make sense.
• Asset management services are chargeable. The commission is levied regardless of whether the investment will yield an income, or not.
• The combined products are not covered by the state guarantee. If the bank or AMC goes bankrupt, the investor will not be able to return its investments.
• There is practically no choice of unique products on the Russian market.
• An investor does not become a real owner of assets, so he can not control investments.

Hidden risks

Structural products are combinations of assets and derivatives. They are collected and sold by world banks in the form of notes (bonds). They insure themselves by releasing positions opposing structural products. The bank always receives a commission. Each individual client, although earning, but on other customers who bought a more risky asset. Ultimately, all customers lose money. Therefore, in order to increase the attractiveness of new products, their risks are "encrypted". What do the banks keep silent about?

Barrier notes

If all selected shares keep the price above the established limit, the holders of combined products will receive back their investments and the specified income. The notes begin to work like bonds. If one of the selected assets decreases in price, the value of portfolio investment will be equated to the worst of the shares. The probability of price reduction at least 1 out of 3 shares is higher than each of them. Accordingly, the potential loss significantly exceeds the possible income.

AutoCall

Portfolio investments are often sold with an additional option. What is the essence of autocolla? If all shares grow in price, the client will be able to purchase one more note, and the banker will receive additional income. When the market grows, once a quarter the banker receives a premium, the client - a new coupon. This happens until one of the securities market drops to the set limit.

Another example is a credit note. The client will receive 100% of the increase in the price per share, and in case of its reduction - the return of 100% of the invested amount. Well, if you use an asset that is not very volatile. It turns out that part of the note, designed to protect the capital, is invested in the stock index. The yield is 20%.

Distribution network

The problem is not only in the risks. Banks can not cover the entire market at once. The mediators come into play. Each link in the chain "bank-distributor-manager" earns on resale. The structure of unique products is such that the bank at any time can recount the terms of investing money. Here everything depends on the seller. Someone will sell the coupon with mandatory investment of 99.5% of the money, receiving only 0.5%, and someone will be able to sell the goods with worse conditions and get 5% at once. The maximum difference can be 35%.

Intermediaries often sell more risky products. As a result, conservative portfolios are stuffed with barrier notes, autocolla and in a year bring 80% of the loss. During this time, bankers manage to get 0.5% and 4 more times 3% commission for the purchase of a new note.

On a note guaranteeing a return of 100% of the investment in the RTS stock exchange index, the banker will earn twice as much. Such a structured product includes a call option for an index, lasting two years (17%), a portfolio of illiquid bonds, which after repayment will give 100% of the initial capital. The market average yield of the bond is 18%, of the portfolio - 62%. From such a transaction, the banker will receive 21%, the remaining 79% - the client.

Conclusion

Structural products are not a pyramid. If you use such tools within the framework of reasonable, then you can turn a profitable transaction. The same stock index in the protection of capital is appropriate if the credit risk is low. But most combined products lose in all respects only due to the inclusion of wood in them. In addition, no one abolished the main rule of trade: the portfolio manager receives profit along with the client, and the seller - on the client.