Susan Brown wants to invest in the Swiss stock market index, the SMI. But she doesn't want to risk losing the money she has to invest. So she decides to place CHF 1,000 in a capital-protected structured product linked to the SMI.
The amount of money Susan will get back when the structured product matures will depend on both the SMI's performance and the product's participation rate in the SMI's performance. For example, if the participation rate is 100%, each time the SMI goes up by 1% the value of Susan's investment will increase by 1% (or CHF 10, which is 1% of her initial CHF 1,000 investment). Of course, if the SMI goes down, Susan's investment is not affected.
Therefore one of two things could happen when Susan’s investment matures:
- If the SMI goes down over the term of Susan's investment, Susan will get back her initial investment of CHF 1,000 but nothing more; or
- If the SMI goes up over the term of her investment, Susan will get back her initial investment plus the corresponding percentage gain in the index (1%, or CHF 10, in the example above).