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Capital protection
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The aim of products with capital protection is the full or partial maintenance of the original capital invested. An investor might be basically positive about the stock markets but shy of the risks involved in direct equity investments. Equity products with capital protection often provide an annual coupon and can therefore be considered as an addition or a supplement to bond investments.
Solution suggestion 1: Capital protection and limited participation in an underlying
The capital invested is protected as at the maturity of the product, but the participation in the underlying is restricted.
- Depending on the currency, maturity and underlying, some very interesting products can be constructed which, with a capital guarantee of, for example, 90% to 100%, offer a participation in an underlying of 50% to more than 100%. The profit potential is unrestricted.
Solution suggestion 2: Capital protection with partici-pation in an underlying with restriction of the perfor-mance
The capital invested is protected as at the maturity of the product and participation in the underlying is 100%. The maximum profit on maturity is, however, limited to a defined amount (a so-called "cap").
- Depending on the currency, maturity and underlying, some very interesting products can be constructed which, with a capital of guarantee of, for example, 90% to 100%, offer a participation in an underlying of 100%. However, depen-ding on the product, the profit potential might be restricted to somewhere between 20% and 50%.
Solution suggestion 3: Capital protection and guaranteed minimum repayment on maturity; limitation of annual performance (Cliquet System)
The Cliquet System guarantees a minimum repayment on matu-rity. In addition, the negative as well as the positive performance of an underlying is restricted (floor or cap). On maturity, the Cli-quet product leads either to a minimum repayment or, if higher, the addition of the annual performances.
- Depending on the currency, maturity and underlying, some very interesting products can be constructed which, with a capital guarantee of, for example, 110% to 140%, offer the additional possibility of participation in an underlying. For example, the annual negative performance is restricted to -5% (floor) and the annual positive performance is limited to +12% (cap). If at the end of the term the sum of the added annual performances is higher than the mini-mum repayment, this higher value is payed off.
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