A structured product is a type of financial instrument and is a pre-packaged investment strategy. A structured product is generally a fixed income instrument embedded with a derivatives position. A structured product could be designed to
meet any investors’ needs by facilitating highly customized risk-return objectives.
The payoff of a structured product is totally different from the holding of a fixed income instrument or the holding of an underlying asset alone. The payoff of a structured product depends on the type of embedded derivatives and is contingent and derived from the performance of one or more underlying assets. The underlying assets could be a single security, a basket of securities, indices, commodities, debt instruments, foreign currencies, and/or swaps. The structured product could be designed to offer customized risk-return payoff exposures to investors and to enable them to efficiently manage their portfolio in relation to their preferences of risk-return relationships.
Therefore, investors do not have to focus only on investing in traditional asset components such as stocks or conventional investment-grade bonds, but will be
able to utilize structured products as a complement to their diversified portfolios.