'A structured product is a product in which you know the end result before you buy it'

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: B Gopkumar, senior vice president & all India head of financial planning group, Kotak Securities Ltd speaks with Abhay Rao of The Financial Express about structured products being offered to the retail investor and how should they go about these investments.

What in your opinion is a structured product?

A structured product is a product in which you know the end result before you buy it. This is the structured part of the product, and it is this endearing quality of these financial instruments that have led to increased investments in them post January 2008. Globally, structured products are one of the largest selling products in the world of wealth management.

However, one must note this is a product and not an asset class. Structured products are built in such a way that they try to mould themselves to an investors risk appetite, while covering a large area of investment options. They usually have a 3-year lock-in period and are capital protecting in nature.

What are the different types of structured products available in the market and what is the basis on which these products function?

There are various types of structured products in the market. Every product that is structured differently to suit an investor becomes a structured product and as such it is very hard to categorise them all. Though some examples of the different products available are Nifty-based, basket of stocks, single stocks structure, etc.

In a basket of stocks structured product say you have five top stocks, the banker or portfolio manager who has designed this product and is selling it will put certain conditions in this product, which, if they occur, provide investors with a handsome return. So say the basket of stocks product may have a clause that states that if this basket of stocks moves 6% up in 3 months you will get a 20% return plus your capital guarantee.

So, if one is bullish on these five stocks the product is offering, he might be very interested in going in for such a structured product. However, these products are now dropping in sales as fewer people are sure of their market sentiments in these times.

Within Nifty products available to investors, there are also various other types. These are all participation products, which do have a capital guarantee. One of the types is a reverse convertible structured product.