Banking Industry Offerings

Structured Products

A structured product, also known as a market linked investment, is generally 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.

Structured investments originated from the needs of companies that wanted to issue debt more cheaply. Earlier, convertible bonds were issued, where debt under certain circumstances could be converted to equity. Investment banks added more features to the basic convertible bond, such as increased income in exchange for limits on the convertibility of the stock, or principal protection. These extra features were all based around strategies investors themselves could perform using options and other derivatives, except that they were prepackaged and offered as one product.

Business Challenges

There is a need for an automated application for handling structured products in view of the following:

  • Interest in these investments has been growing in recent years.
  • High net worth investors now use structured products as way of portfolio diversification.
  • Nowadays the product range is very wide, and reverse convertible securities represent the other end of the product spectrum (yield enhancement products).
  • Structured products are available at the mass retail level.
  • There is a need for allowing the investors to do any permutation combination of available options and make a mix of investment strategy to satisfy their requirements.

What We Offer

Kumaran Systems offers a solution for handling structured products with basic features. This solution allows creating structures with combinations of derivatives and financial instruments that have significant risk/return and/or cost savings profiles that may not be otherwise achievable in the marketplace. Structured products are designed to provide investors with highly targeted investments tied to their specific risk profiles, return requirements and market expectations.These products are created through by combining underlyinglike shares, bonds, indices orcommodities with derivatives. The value of derivative securities, such as options, forwards and swaps is determined by the prices of the underlying securities.

The market for derivative securities has grown quickly in recent years. The main reason for this lies in the economic function of derivatives; it enables the transfer of risk, for a fee, from those who do not want to bear it to those who are willing to bear risk.

A feature of some structured products is a "principal guarantee" function, which offers protection of principal if held to maturity. For example, an investor (ABC) invests USD 100 under Principal protected Notes. The issuer of the PPN (XYZ) will simply invest a certain amount in a risk free bond that has sufficient interest to grow to 100 after the five-year period. This bond might cost USD 80 today and after five years it will grow to USD 100 so that the issuer XYZ will pay US 100 to the investor ABC. With the leftover funds the issuer purchases the options and swaps needed to perform whatever the investment strategy is.

Structured products were created to meet specific needs that cannot be met from the standardized financial instruments available in the markets. Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to utilize the current market trend.

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Benefits of Structured Products application may include:

  • Principal protection
  • Tax-efficient access to fully taxable investments
  • Enhanced returns within an investment
  • Reduced volatility (or risk) within an investment
  • The ability to earn a positive return in low yield or flat equity market environments
  • Quick decision making while selecting the products
  • User friendly workflow
  • Investment advisors can satisfy the specific risk and economic exposure appetites of each client.

Testimonials

Clients

Nesbitt Burns Inc, Toronto, Canada

Providian Financials, US

Citibank, US

Contact Us

Email:
banking@kumaran.com

Phone:
1-800-kumaran