People make lots of investments to secure their present as well as future. They cannot predict future needs and emergencies. Hence, they start saving and investing from the present so that they can at least use some emergency funds when in need. The statistics of the values of products and services keeps fluctuating regularly. Thus, it becomes difficult to determine the future value of an investment. But there are some which offer decent returns, and people can rely on them.
People often invest in structured products to save tax on taxable investments, enhance their returns, reduce the volatility, earn in markets, and protect the principal on the capital. They are of two types, namely:
- Structured deposits:
These deposits lock the investors’ money for a fixed period, usually five to six years. They get a certain amount of money after the product has matured. The rate depends on the performance of the market link of the product. Since these deposits are customisable, the rules of companies might differ from one another.
When people invest in structured finance products, there are possibilities for them to earn without risking their capital. On the contrary, they may also get lesser interest as compared to what they could have gained with a savings account deposit.
- Structured investments:
These investments work similarly to the deposits in terms of locking the money for a specific period. Some of them offer a fixed amount at maturity, based on the performance and the profits of the market.
They generate regular income, but there is no guarantee of the security of capital since it depends upon the market performance. If the market value decreases, a vast portion of the investment is lost simultaneously. Just like any ordinary investment, it takes lots of effort and alertness to understand whether an investment is worth pursuing without having a set of rules. Since they are highly customisable, investors must carefully examine what other companies are presenting. They must also make a note of the risks that are involved in comparison to the rewards.
These investments are complicated. High investment-grade issuers like global financial institutions, offer most of these products. But during a financial crisis, structured products in India are prone to losing principal, like those of options. The Federal Deposit Insurance Corporation (FDIC) may not necessarily insure them, but the issuer has the liberty to do so. If companies face problems with liquidity or bankruptcy, investors are likely to lose their initial investments.
Structured products India help investors acquire derivative benefits and play a role in building and managing their portfolios. They can use their products to achieve financial objectives.