In
structured finance, a
structured product, also known as a market-linked investment, is a pre-packaged
investment strategy based on
derivatives, such as a single
security, a basket of securities,
options,
indices,
commodities, debt issuance and/or foreign
currencies, and to a lesser extent, swaps. The variety of products just described is demonstrative of the fact that there is no single, uniform definition of a structured product. A feature of some structured products is a "principal guarantee" function, which offers protection of principal if held to maturity. For example, an investor invests $100, the issuer simply invests in a risk-free bond that has sufficient interest to grow to $100 after the five-year period. This bond might cost $80 today and after five years it will grow to $100. With the leftover funds the issuer purchases the options and
swaps needed to perform whatever the investment strategy. Theoretically an investor can just do this themselves, but the cost and transaction volume requirements of many options and swaps are beyond many individual investors.