Given the broad variety of structured investment products available today, it's important to understand how they can be categorized.

Let's explore some useful ways to classify different types of structured products.

The first and probably most intuitive way to categorize structured products is by looking at the underlying asset. Since the returns of a structured product are directly linked to the performance of its underlying asset, understanding the nature of that underlying helps investors assess risk and return potential. These underlying assets can belong to different asset classes, each offering unique characteristics. For example, structured products linked to credit markets derive their returns from credit-related instruments. A common example of this is a credit linked note or CLN, where payouts depend on the creditworthiness of a reference entity or the occurrence of a credits event, such as default restructuring or downgrade. Another category is structured products tied to foreign exchange or FX markets. These products are linked to currency fluctuations. One of the most commonly traded being a dual currency deposit, or DCD, which provides a higher interest rate in exchange for the risk that the final payout may be converted into a different currency at a pre-agreed exchange rate. Then there are structured products based on equities, which track the performance of either a single stock, a basket of stocks, or an equity index.

Some common examples include participation notes, which allow investors to gain exposure to an underlying stock or index without owning the asset directly, often providing a structured return profile linked to market performance. Another example is a reverse convertible, which offers enhanced interest payments, but comes with the risk that if the underlying asset falls below a certain level, the investor will receive the lower valued shares instead of the full principle repayment. Beyond these categories, structured products can also be linked to interest rates, commodities, real estate indices, or even volatility indices like the VIX.

These diverse underlying assets allow structured products to be tailored to a wide range of investment strategies and market conditions.

Another useful way to distinguish structured investment products is by looking at their return profile. In other words, the way in which these products generate returns for investors. Structured products can be broadly categorized into capital growth products and yield enhancement products. Each offering distinct return characteristics and investment objectives. Capital growth products are designed for investors seeking capital appreciation rather than regular income. These products provide returns linked to the performance of an underlying asset, such as an equity index or a commodity. A key feature of capital growth products is that they often include structured payoffs, predefined return profiles that modify the upside potential through mechanisms such as participation rates, caps, or barrier levels, sometimes incorporating leverage. On the other hand, yield enhancement products are focused on generating income rather than capturing capital growth, these products offer enhanced returns through fixed or conditional coupon payments, making them attractive for investors who prioritize income generation. In return for these higher yields, investors often accept some level of capital risk, meaning their principle may be reduced or converted into the underlying asset if certain conditions such as price declines are met. Both categories serve different purposes within a portfolio. Capital growth products align with investors who have a more bullish outlook on an asset. While yield enhancement products are often used by investors looking to boost income while managing risk exposure.

A third way to categorize structured investment products is by evaluating how much of the investor's capital is at risk. Structured products can be designed with full capital protection, partial capital protection, or no capital protection with a special category for contingent capital protection.

Full capital protection products guarantee that investors receive their full initial investment at maturity, regardless of the performance of the underlying asset. This means the repayment of the initial investment amount is completely unaffected by market fluctuations providing a high level of security. However, this protection typically comes at a cost. Such products often have limited upside potential, meaning they may provide lower returns compared to riskier alternatives. Partial capital protection products ensure that investors recover a predefined portion of their initial investment at maturity. For example, 90% or 95% of the original capital, the guaranteed portion is independent of the underlying assets performance, which gives investors some downside protection. At the same time, these products typically Offer a higher return potential than fully protected products as they introduce some exposure to the underlying asset. No capital protection products come with no guaranteed return of the initial investment, making them inherently higher risk. Because these investors accept greater capital risk, they are typically compensated with higher potential returns, often through enhanced yields or leveraged participation in the returns of the underlying asset. A special variation within this category is contingent capital protection. In these structures, capital is only protected under certain conditions. Typically, investors recover their initial investment only if the underlying asset remains above a predefined cutoff point referred to as a barrier during the investment period. If the barrier is breached, capital protection no longer applies, and investors may face partial or total losses.

It's also important to note that capital protection in structured products is only as strong as the credit worthiness of the issuer. Since these products are essentially debt instruments, investors are exposed to the issuer's credit risk, meaning that if the issuer defaults, even a fully capital protected product could suffer losses.