Capital protected product

Here is an explanation from the London stock exchange:
http://www.londonstockexchange.com/en-gb/pricesnews/prices/structuredproducts/proddescriptions/capprotect.htm

Basically, the issuer of the product buys a zero coupon bond to provide the redemption of the capital at maturity date and uses the interest to buy an option.

If the option works well, it can give an attractive return. If the market moves in the wrong direction, the option is useless and the investor loses the option money entirely.

This product has a disadvantage. The issuer is likely to take away a large part of the investment (5% to 10%) as marketing expenses and profit. This leaves very little money to buy the option. This is why most capital protected product gives poor return over the past years.

For a capital guaranteed product, an additional fee is taken away to pay the bank that provides the capital guarantee. This reduces the return to the investor further.

Be aware about capital protected product. It is good for marketing, but is actually quite useless. Read this opinion:
http://www.wrenresearch.com.au/advisers/factsheets/060413/index-b.htm