What are Structured Products?
Structured products are pre-packaged investment instruments that combine a fixed-income component (such as a bond or deposit) with a derivative component (such as an option on an equity index) to create a customised risk-return profile. In India, the most common form is the Market-Linked Debenture (MLD), which offers returns linked to the performance of an underlying index like Nifty 50 while providing some degree of principal protection. Structured products are typically issued by NBFCs and banks, and are placed with high-net-worth investors through wealth managers.
Payoff Structures and Types
Structured products can be designed with various payoff profiles. Capital-Protected Notes guarantee return of principal at maturity while offering upside participation in equity markets — for example, 100 percent principal protection with 70 percent participation in Nifty returns. Yield Enhancement products offer higher coupons in exchange for taking on some downside risk. Autocallable structures pay a fixed coupon and redeem early if the underlying stays above a barrier level. The choice of structure depends on your view on market direction, volatility expectations, and whether you prioritise capital safety or return maximisation.
Suitability and Considerations
Structured products are suited for investors who want equity-linked returns with defined risk parameters, or those seeking to express a specific market view with a known worst-case outcome. Key considerations include credit risk of the issuer, liquidity (most structures are held to maturity with limited secondary market), fee transparency, and tax treatment. In India, MLDs held for more than 12 months were historically treated as long-term capital gains, but recent tax changes have altered this benefit. Always review the term sheet carefully and understand the payoff formula, barriers, and early redemption conditions before investing.