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Banking Industry Solutions

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.