A structured note with principal protection is a structured investment product that combines a bond with a derivative component and that offers a full or partial return of principal at maturity. Structured products, in general, do not represent ownership of any portfolio of assets, but rather are promises to pay made by the product issuers.
Structured notes with principal protection typically reflect the combination of a zero-coupon bond, which pays no interest until the bond matures, with an option or other derivative product whose payoff is linked to an underlying asset, index, or benchmark. The investor is entitled to participate in a return that is linked to a specified change in the value of the underlying asset.
The terms and structures of structured notes with principal protection can be more complex than traditional bonds, making them more difficult for investors to evaluate. Before purchasing these types of products, make sure you understand the terms of the products. You may wish to speak to a financial advisor for more information.
Structured notes with principal protection are usually created and issued by investment brokers and dealers. Some banks offer their customers structured notes with principal protection as investment options.