Structured Investments: How do structured investments work?

The following is an example of how an interest rate-linked structured investment works:

An interest rate-linked structured investment means that the returns are usually linked to some interest rates.

There is usually a formula that makes reference to a specific floating interest rate (e.g. the Kuala Lumpur Interbank Offer Rate (KLIBOR)).

The actual returns depend on the interest rate movements.
Investment details:
Your investment: RM100,000 principal protected
Underlying asset: 3-month KLIBOR
Interest payable: Yearly basis if KLIBOR moves within the agreed band (e.g. 3% - 3.75%) during the investment period and nothing if KLIBOR moves outside the agreed band during the investment period.

Total payback upon maturity

Scenario 1:
If KLIBOR moves WITHIN the agreed band during the investment period, you will receive a positive return on your investment.

Scenario 2:
If KLIBOR moves OUTSIDE the agreed band during the investment period, there will be no investment return for you.

Early withdrawal

If you withdraw the investment before it matures, you will receive a sum less than your initial investment.

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Reprinted with permission from BankingInfo (A Consumer Education Programme by Bank Negara Malaysia)

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Knowledge Base ID :   1456
Last Reviewed :   May 22, 2014
Source :   BankingInfo
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