The alert includes questions investors should ask when considering structured notes with principal protection and provides links to helpful resources, including a recent FINRA Regulatory Notice on these products. Finally, as with structured products generally, structured notes with principal protection may have hidden or imputed costs that can be relatively high and difficult to understand.įINRA and the SEC’s Office of Investor Education and Advocacy are issuing this alert to make investors aware of these risks and to help them better understand how structured notes with principal protection work. Their terms and structures also can be more complex than traditional bonds, making them more difficult for investors to evaluate. While structured notes with principal protection have the potential to outperform the total interest payment that would be paid on typical fixed interest rate bonds, these notes also might underperform a typical fixed interest rate bond and could earn no return for the entire term of the note, even if you hold the note to maturity. Even where a secondary market exists, the note may be quite illiquid and you could receive substantially less than your purchase price.
If you need to cash out your note before maturity, you should be aware that this might not be possible if no secondary market to sell your note exists and the issuer refuses to redeem it. And you typically will receive principal protection from the issuer only if you hold your note until maturity. Also, some of these products have conditions to the protection or offer only partial protection, so you could lose principal even if the issuer does not go bankrupt. Any promise to repay some or all of the money you invest will depend on the creditworthiness of the issuer of the note-meaning you could lose all of your money if the issuer of your note goes bankrupt. While these products often have reassuring names that include some variant of “principal protection,” “capital guarantee,” “absolute return,” “minimum return” or similar terms, they are not risk-free. The retail market for structured notes with principal protection has been growing in recent years.
0 kommentar(er)
