Structured Products Explained: Unlocking New Growth Opportunities for Investors

Structured products in finance combine multiple financial instruments to help investors achieve goals with a balanced risk-return objective. By replacing the standard payouts of traditional securities, like investment-grade bonds, with innovative payoffs, they offer a customized approach to investing. With the country now ranking among the top 10 globally for total private wealth, the demand for these customized investment solutions is on the rise.

In this guide, we will dive into the concept of structured products, exploring their types, how they work and why they are becoming a game-changer in wealth management.

What Are Structured Products?

Structured products are financial instruments that combine assets, with exchange-traded derivatives, including stocks,bonds, commodities and more, to create a hybrid investment solution. Designed to provide capital protection, enhanced returns and steady income, such instruments cater to individuals, seeking customized investment opportunities.

To create such opportunities, factors such as the market outlook, risk appetite and investment horizon of the concerned individual are considered. The performance or valuation of these investments depends on the underlying assets or indices.

Generally, structured products include ‘options’, a type of derivative that grants investors the right to buy or sell an asset at a predetermined price (known as the ‘strike price’) and on a specific date. A ‘call’ option allows an option holder to purchase underlying assets at a given price while a ‘put’ option allows him/her to sell the holdings at a certain price.

An Example of Structured Products

The following illustrative example elaborates on structured finance products:

Suppose, an investor parks his/her funds in a zero-coupon bond in India with an equity option using a structured investment. The principal remains protected, ensuring capital protection as the investor purchased the bond at a discounted price. This bond matures at the face value, allowing the investor to make potential gains in an individual stock or index using the equity option.

If 80% of the investment amount is in an investment-grade bond with a three-year maturity period, the remaining 20% in equity option allows the investor to earn profits if the index outperforms. Similarly, if the index underperforms, the investor will incur a loss on only 20% of his investment while the remaining 80% will be capital-protected.

Types of Structured Products in India

Here are the types of structured finance products:

● Asset-backed Securities: As the name suggests, these are financial instruments backed by underlying assets. Financial institutions pool various loans together into one security, which is then offered to investors, allowing them to invest in these asset-backed securities.

● Mortgage-backed Residential and Commercial Securities: These are also a form of asset-backed securities, specifically backed by mortgage assets. The cash flow is backed by the principal and interest payments from mortgage loans.

● Collateralized Mortgage Obligations (CMO): It comprises a pool of mortgage assets bundled and sold as an investment option.

● Credit Default Swap: It is a contractual agreement between two parties wherein one party buys protection from the other party against losses when a borrower defaults for a specific period.

● Collateralized Debt Obligations: It is an investment instrument with a pool of loans and additional assets.

● Insurance-linked Securities: This type of structured investment product aims to transfer losses in insurance that is less likely associated with the conventional financial market; however, is associated with catastrophic events.

● Collateralized Fund Obligation: It ensures security for private equity funds and assets related to hedge funds.

● Syndicated Loan: A syndicate is a group of lenders or lead arrangers that provide loans arranged by a group of investment banks or commercial banks.

Benefits of Investing in Structured Products

Investors can reap the following benefits from these products:

1. These products offer personalised solutions wherein investor's horizons, financial goals and risk tolerance are taken into consideration.

2. Some structured products return the principal investment at maturity. This offers capital protection, making them ideal for conservative investors seeking safety.

3. These products allow portfolio diversification by investing in multiple asset classes and reducing the overall risk level.

4. Its returns are higher than regular savings or investment products.

Risks Associated with Structured Products

Here are the risks associated with these products:

● Although popular, structured products can be difficult to understand. Their structure and operation require expertise and financial knowledge to fully grasp.

● These instruments often come with low liquidity features, making it difficult to exit the investment when needed. As a result, accessing funds may not be possible on an urgent basis.

Role of Structured Products in Modern Finance

Structured products allow individuals to invest in multiple securities, offering a convenient way to get the desired risk-return balance and protection without the need to pick individual investments. Derivative securities, which are often too complex for some high-net-worth individuals and retail investors, are made accessible through structured products.

These products provide benefits of derivatives to investors who may not have been able to invest in them otherwise. When used alongside traditional investments, structured products can play a valuable role in modern portfolio management.

The Bottom Line

Financial innovation, coupled with the growing investor class, has changed the way people invest in 2025. One instrument that has gained popularity as a supplement to traditional portfolios is structured products, offering easy access to derivatives. For individuals looking to explore new growth sectors and diversify across multiple asset classes, investing in structured products is the key.