A structured note is a hybrid security that combines the features of multiple different financial products into one. It is a debt obligation that also contains an embedded derivative component that adjusts the securitys risk-return profile. Structured notes are typically issued by financial institutions and are designed to meet specific investment objectives, such as growth, income, or risk management. They combine a traditional security, like a bond, with a derivative component, and their return is based on equity indexes, single equity, a basket of equities, interest rates, commodities, or foreign currencies. The performance of a structured note is linked to the return on an underlying asset, group of assets, or index. Structured notes can be too risky and complicated for individual investors.
Some key features of structured notes include:
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Hybrid security: A structured note is a hybrid security that combines the features of multiple different financial products into one.
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Embedded derivative component: A structured note contains an embedded derivative component that adjusts the securitys risk-return profile.
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Return performance: The return performance of a structured note tracks both the underlying debt obligation and the derivative embedded within it.
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Types: Common types of structured notes include principal-protected notes, reverse convertible notes, and leveraged notes.
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Investment objectives: Structured notes are designed to meet specific investment objectives, such as growth, income, or risk management.
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Issuer: Structured notes are typically issued by financial institutions.
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Underlying asset: The performance of a structured note is linked to the return on an underlying asset, group of assets, or index.
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Risk: Structured notes can be too risky and complicated for individual investors.
Structured notes are often illiquid, which can make them difficult to sell prior to maturity. They can be quite complicated and come with certain downsides, and their terms and features can be significantly different and more complex than other investments.
