Some tips on investing in structured products

1. What are structured products?

These investments link your returns to stocks or bonds. It reduces both the high and low-end of potential returns. You receive the middle part.

2. What type of structured products are good for consumers?

If you must buy a structured product, your best bet is probably one (i) which pays a minimum return that is more than a money market fund and (ii) doesn't lock up your money for longer than you are comfortable with. (It is hard to find one of these.)

3. What type of structured products are bad for consumers?

Structured products with high costs and uncertain returns are bad for consumers.

Costs: For many structured products, the costs are not disclosed. Some structured deposits trade as unit trusts and these report an expense ratio. The expense ratio contains most of product's costs.

Returns: The products usually state a minimum and maximum return. If the minimum return is higher than the money market rate, it is acceptable as long as it doesn't lock up your money for longer than you wish.

4. What steps should the consumer take, before investing in a structured product?

Check out the (i) costs, (ii) minimum returns and (iii) lock-in period.