This structured product is bad for consumers

Here is another example of a structured product that is bad for consumers.

- guarantees a full return of your principal at the end of 6 years
- gives a potential large gain (through a complicated investment strategy)

To give the full refund of principal, the manager invests 80% of the fund in safe bonds (which now earns about 3.5% p.a) . To give the potential large gain, they invest 10% to 15% of the fund in speculative investments, such as options or derivatives.

The chance of making a big gain from the speculative investments is small. It is like gambling.

This structured product imposes an additional cost of 5% to 10% to pay fees for the fund arranger and the distributors (usually banks). These fees have to be paid by the investors (i.e you).

With this type of structure, most investors find that their return on maturity is usually lower than the return on bonds (due to the high fees).

If the investor had invested directly in an equity fund, they would have received spectacular returns over the past three years. The investors in structured products have come out quite badly.

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There is now a new variation of structured products, which now give an attractive payout, say 5% per annum. Many investors do not realise that this return is actually taken out of your principal. They were misled into thinking that the structured product was able to earn this return.

Many investors are now stuck with these types of bad products. If they wish to withdraw from the investments, they have to suffer a loss now (due to the high fees).