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For investors, the prospect of protecting their hard-earned capital while still participating in financial markets can be a paramount concern.
To address this, financial institutions like banks and asset management companies offer a range of specialised products designed to provide a level of security for investors’ principal amounts. But how exactly do they work?
FNB’s new offering
FNB’s latest offering is its newly launched capital-protected structured investment solutions, which includes the FNB 100 CapitalPreserve 1; the FNB 100 CapitalPreserver Autocall 1, and the FNB 80 Capital Preserver Autocall 1.
It’s important to look at the terms and conditions of such products as not all of them offer a 100% guarantee of the capital. For instance, both of FNB’s 100 products offers 100% of capital protection, while the 80 guarantees 80% of invested capital.
The bank explains that these products are traditionally offered to large institutional investors but that they are now offering such products to individual clients to help them achieve a well-rounded, risk-managed portfolio.
Bheki Mkhize, CEO of FNB Wealth Investments, says: ‘Structured solutions provide a unique blend of security and opportunity, and they are especially valuable in times like these when investors are seeking investment options where they are not compelled to sacrifice returns to achieve the risk protection they desire.’
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Liberty’s take
Liberty, meanwhile, has two rand-denominated structured portfolios that offer clients exposure to offshore markets without currency fluctuations and offer a degree of capital protection and pre-determined minimum returns under specific circumstances.
Luvhani Makoni, Senior Specialist for Retail Investment Propositions at Liberty explains that the level of protection depends on which structure is selected. She adds: ‘Whether or not investors should invest in these types of investments is dependent on the individual’s financial goal and overall financial plan.
‘Someone who wants market exposure but is not sure where markets will be in a few years but also wants some level of capital protection in case there is a market downturn would most likely use this kind of investment.’
Are they better than traditional funds?
The jury appears to be out on whether these products are better than traditional funds, which offer no guaranteed protection to capital. When asked whether capital protection products offer better returns, Makoni says: ‘This depends on the type of investment and market performance. For a guaranteed capital bond for example an investor knows what type of return they will get at the end of the investment period.
‘Whereas with a structured investment, this depends on where markets are in five years’ time. For investments with no capital protection, investors are exposed to the market (good or bad performance). It really does depend.’
As they offer a degree of protection, these products can also be more expensive so it’s important to compare fees. ‘This is sometimes the case and depending on what you’re looking for it can be worth the return on investments that you get,’ adds Makoni.
Who should invest in them?
Few are willing to say who these products are most suited to. Most financial experts simply say these products are designed for those who want capital protection in the event of a market downturn.
Some would assume that we all want that, however, when you’re younger you may want to take more of a gamble and a long-term view in the knowledge that investment performance can go up as well as down. However, if you’re older and have money you don’t want to lose these products can offer that extra protection and help you sleep better at night.
As with any investment, there is risk. This is why it’s important to conduct thorough research and seek professional advice to ensure your chosen product aligns with your financial goals and circumstances.
