How is a Market-Linked Product Developed?

Every Market-Linked Product is constructed differently, but many of them rely on the same basic concepts. Frequently, the financial engineering involves the replication of a zero coupon note and an option component that has a payout at maturity, thus giving the Market-Linked Product its particular risk and return profile. The leverage inherent in options can work to the investor's advantage or disadvantage.

What does "Principal Protected" mean?

The term "principal protected" does not mean that an investor is guaranteed to receive the full return of principal. Rather, a principal protected note is an obligation of the issuer that issued the note and is subject to the credit quality and claims paying ability of that issuer. In the case of a bankruptcy of the issuer, the note holder would be repaid at a rate equivalent to other senior unsecured debt holders of the firm. Principal protected notes are not FDIC insured. A Market-Linked Certificate of Deposit issued by a bank is generally insured by the FDIC up to $250,000 per depositor, subject to FDIC rules. Investors should refer to the respective offering documents for further information. Selling a principal protected or FDIC insured product prior to maturity may result in loss of principal.

What if an Investor Wants to Sell a Market-Linked Product? Can an Investor Profit by Actively Trading Them?

Once issued, a Market-Linked Product will generally trade at a discount to their value at issuance due to the embedded distribution and hedging fees included in the original issue price. Market-Linked Products, when not listed, are typically not intended to be actively traded instruments and are intended to be held to maturity. The value of the investments will not directly correspond to the underlying reference asset, and investors may not receive the expected payout if they sell their investments prior to the stated maturity date.

Are There any Special Tax Considerations?

The tax treatment on Market-Linked Products varies with each risk and return profile and depending on the investor's tax situation. Incapital does not provide tax or financial advice. Please consult with a qualified tax accountant before investing.

What Should I Do if I Would Like to Know More About Market-Linked Products?

Please contact your Financial Advisor and/or Tax Consultant and consider:

  • Market-Linked Products are not suitable for all investors.
  • Market-Linked Products are intended to be buy and hold investments. The secondary market for these securities is limited.
  • This site has been designed principally for informational purposes and no information on the site is to be considered an offer to sell or a solicitation of any offer to buy any securities or any other instruments.
  • Offers and sales of any of these securities or instruments may only be made pursuant to the related offering document which should be read carefully.
  • Investment value prior to maturity will be influenced by many factors, including interest rates, the level of the underlying reference asset, implied volatility and the time remaining to maturity. Investors may lose some or all of their investment in connection with some of these instruments.
  • This communication is not intended to provide accounting, legal or tax advice or investment recommendations. Investors should contact their own accounting, legal or tax advisors for additional information. Information on this website is subject to change.

The investment products discussed herein are considered complex investment products. Such products contain unique risks, terms, conditions and fees specific to each offering. Depending upon the particular product, risks include, but are not limited to, issuer credit risk, market risk, the performance of an underlying derivative financial instrument, formula or strategy, and foreign currency risks. Return of principal is not guaranteed and is subject to credit risk of the issuer or the performance of a derivative instrument, formula or strategy. Additionally, unless otherwise specified in the respective offering documentation, the products discussed herein are not FDIC insured, may lose value, and are not bank guaranteed. You should not purchase a complex investment product or make an investment recommendation to a customer until you have read the specific offering documentation and understand the specific investment terms and risks of such investment.