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Structured Deposits

A Structured Investment Product is a legally binding contract between an investor and a broker. The investor lends money to the broker for the life of the product (typically as short as 1 week to as long as 10 years). At the end of the product life, the investor receives the product return from the broker. The product return is based on a formula, sometimes based on the performance of the prices of individual shares, commodities, foreign currencies, but more typically on a share price index, such as the Dow Jones Industrial Average. A structured deposit is essentially a combination of a deposit and an investment product, where the return is dependent on the performance of some underlying financial instrument. Typical financial instruments linked to such deposits include market indices, equities, interest rates, fixed-income instruments, foreign exchange or a combination of these.

Factors to consider

•Consider your liquidity needs as your money will be tied up for a period of time and early withdrawal may result in loss of part of your return and/or principal. Make sure that you have sufficient savings set aside before investing in structured deposits.

•Determine whether you have the risk appetite for these products. Structured deposits are riskier than normal fixed deposits. You should understand the risk involved and what will happen in a worst-case scenario. If you are unsure, seek financial advice form a professional.

•Minimums are £1million, US$1million or €1million; we can combine several clients to achieve this.

•The overall return will depend on market conditions at the time of deposit and maturity. As structured deposits are tied to underlying financial instruments such as market indices, equities, interest rates, fixed-income instruments, foreign exchange, or a combination of these.

•Past performance is not necessarily a guide to future performance and any exposure to any financial instrument may cause additional fluctuation in the value of any investment.

•Changes in the rates of exchange between currencies (in different cases) may cause the value of your investment to fall.

Product negatives & benefits

Risk of Loss: in some Structured Deposits you also risk losing a proportion or all of your initial investment. Sometimes this risk is somewhat mitigated against a drop in prices to a certain level (typically 50%-90%). This is often referred to as “soft” protection. However, if share prices drop beyond this level the protection is cancelled, meaning that you will most likely lose money.

Caps: many products have an upper limit on the maximum possible return. This means that if share prices perform very well, or if there is a significant amount of inflation, your investment returns may not be so attractive and you could lose money in real terms.

No dividends: structured deposits typically do not pay dividends in periods less than one year.

Protection: Structured Deposits (and some Structured Investment Products) are designed with the aim of returning at least your initial investment, regardless of share prices. But that protection normally only applies at the end of the product life; if you need to access your money early then you may get back less than your initial investment.

Gearing: some products are designed with the aim of creating returns that increase faster than share prices themselves.

Income: some products are designed with the aim of generating income. Normally either your initial investment or the income itself is at risk to the share prices performing badly.