Introduction
The advent of the internet and technology has thrown up a paradigm shift in how finances and investments work in today’s world. You can witness a plethora of changes every single day. Therefore, you must choose dynamic investment options that yield to changing times. At the same time, you also want to see your income or investment portfolio grow.
Planning for retirement is not as easy as it sounds. You must look for avenues of investment that do not eat away your principal money or capital. But when you do not choose the wise form of investment options, you may lose your money to growing inflation.
Therefore, you must diversify your income into different avenues of investment so that the loss in one product offsets the gain done by another. And this way, your overall investment portfolio remains intact.
On this note, let us discuss curated forms of structured notes for retirement planning:
Principal-Protected Notes
As the name suggests, the principal protection notes provide complete assurance to investors that they will be getting their complete principal investment amount at the time the notes reach the maturity of the term. Although these notes are also linked to underlying assets like equity or stocks, the principal money is returned to investors despite the volatility of market conditions. Therefore, principal-protected notes come as a brilliant product you choose for your retirement planning.
Income-Generation Notes
Income-generation notes are usually linked to income-generating equity assets that provide steady sources of income to investors. You may be entitled to receive coupons, interest earnings, and dividends periodically. Therefore, these are regular payments that can improve the health of your overall cash holdings and help retirees plan for their future.
Reverse Convertible Notes or RCNs
Reverse Convertible Notes or RCNs are structured notes that offer higher coupon payouts. However, entire capital protection may not be possible on these notes if the underlying assets do not reach pre-designed levels that have been set. In case the initial conditions on RCNs are met, investors are offered their principal money plus returns at the time of redemption. Otherwise, the investment money gets converted into shares of the underlying companies. The investors can sell these shares later on to add to their retirement kitty. RCNs still are a win-win for product issuers and investors on the whole.
Equity-Linked Notes
Equity-linked notes or ELNs are popular kinds of structured notes and you have notes that come to you with capital protection and those notes that may not offer investors 100 percent principal protection. The notes are usually linked to equity-based assets like independent stocks or a basket of high-paying stocks. Although ELNs aim for principal protection, the notes lend higher returns on the investment based on the final values of stock prices when the notes are about to mature. However, elns offer regular coupons or dividends that can improve your cash holdings and therefore this is an attractive form of notes you can choose while planning for your retirement.
Bond-Linked Notes
Bond-linked notes are notes that are linked with independent bonds or a basket of bonds. On a general note, it is well understood that bonds protect investor’s capital investment as with any other form of investment. At the end of the redemption or maturity period, the investors not only get their principal amount but also receive enhanced returns you get from the bond markets. Therefore, this is definitely a product that is retirement-friendly.
Inflation-Linked Notes
These notes are particularly designed to protect investor’s money from getting eroded due to inflationary concerns. The notes help investors gain better exposure to their purchasing power by helping them earn returns by adjusting the payouts with inflation rates. When you get returns to keep pace with inflation, this is the money that is definitely going to stick far and beyond helping you through with your retirement savings.
Auto-Callable Notes
Auto-callable notes come with an in-built auto-calling mechanism and product issuers can auto-call the notes as and when assets reach favorable points over their initial values or on-spot strike prices. The assets are observed during observation dates and when assets reach their final sale point values that are at par or above initial spot prices, the notes stand redeemed. Investors get their principal amount and coupon payouts while the auto calling can happen even before the asset’s term ends. These are attractive short-term investments wherein investors hedge between growing interest rates and further accentuate their income-earning levels.
Digital Notes
Digital notes are notes that are linked to digital currencies like crypto coins. However, there is a high amount of risk and market volatility concerning cryptocurrency. At the same time, the crypto-mined coins can bust the investors with extremely higher returns as against other forms of investing options. Therefore, investors who are highly capable of handling risk tolerance under their belt opt to sign up a portion of their disposable income with digital notes and thereby plan a speedier retirement.
Why Are Structured Notes Growing In Popularity- Benefits Of This Investment Option- Explained
Structured notes are gaining increasing popularity and earning the trust and confidence of investors and these are the lucrative benefits this investing option offers to investors on the whole.
Let us have you covered with pointers connected with the same:
A Higher Degree Of Customization
Unlike your regular options like bonds or fixed-income securities that have standard trade protocols, structured notes come to you with a very high degree of customization. With these notes, investors can customize what underlying assets they want to link the notes with.
They can choose between stocks, bonds, currencies, high-paying securities, options, futures, and commodities to name a few. This way, investors can choose whether they want to structure their notes to suit their short-term, medium-term, or long-term financial objectives.
The customization does not just stop here. The structured products offer ample opportunities for investors to choose the rate of returns and tenor periods for their portfolios too. This way, the investors get their capital protection while the returns are linked to the performance of underlying assets the notes have.
With caps, floors, spreads, and barriers, the notes expose investors’ money to a safer net as compared to the excessive volatility equities put the investor’s capital money through.
Multiple Forms Of Income Sources
The returns of investment are not limited to fixed-interest rates alone and you can avail lucrative income sources while you plan to invest via structured notes. While income notes are linked to coupon payouts or interest earnings, growth notes upscale performance-related indexes of growing stocks.
Dividend earnings can also be availed of by the investors. Therefore, you get multiple channels of income returns as against traditional bonds, etfs, or mutual funds. Therefore, this is a dynamic form of earning potential and most investors get to steadily grow their income resources despite adverse market scenarios. With multiple sources of income, you can look forward to building robust wealth management systems.
Wider Exposure To Different Market Segments
As structured notes combine debt with equity, investors get wider exposure to handling fixed deposits or volatile equities at an optimal degree of ease or precision. The notes operate via primary marketplaces wherein investment bankers or independent wealth managers curate the notes as such.
Alongside, the assets that underlie the notes are made to pass via the equities or derivatives market comprising stock exchanges or financial institutions that are stock-holding corporations. This is the secondary market we are talking about.
Above all, the investors can also sell or liquidate the noes to similar retail investors or high-net-worth individuals at promising price values. A layer of the tertiary market operates here.
Therefore, this is a dynamic investing option that exposes you to all types of market segments in one go. You must also consult a tax advisor to know tax implications that complement asset classes.
Diversification Of Investment Portfolios
The notes can hold as many underlying assets as you may wish to choose. You can have a bond, currency, and an equity stock or you may underline your portfolio with a basket of high-paying equity stocks. Or, the investment portfolio can comprise a basket of high-end securities or even liquid currencies to name a few.
This way, you have a diversified pool of investment when you plan to invest your money via different types of structured notes. The lucrative benefit is that the loss of one unit can be compensated or offset via the gains the other note or underlying asset makes. This way, the investment portfolio remains intact and does not lead you into a capital erosion scenario.
The Bottom Line
As the issuance of notes is done by investment bankers wealth managers or high-grade banking corporations, you must double-check the creditworthiness of the product issuing firms before you start taking the right foot forward.
Every investment product has its own set of pros and cons. At the same time, we also have a whole fleet of risk factors like liquidity, credit, and market risks to name a few.
The investors must carefully weigh the pros and cons vis-a-vis the risk factors that are involved with investment plans. This way, you can make well-informed decisions as to whether you want to go in favor of an investment plan or not.
Above all, the investment plan must suit every segment of investment holders. Be it high-net-worth individuals, middle-class retail investors, or wealthy institutional investors.
What are your thoughts on this? Do let us know in the comments below.
