Principal protected notes
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Principal Protected Notes
Investments such as guaranteed investment certificates (GICs) and bonds provide investment security with little or no risk of capital loss, they provide modest returns. While stocks have the potential to deliver substantial returns, they do so at much greater risk.
Throughout the unpredictable and volatile market conditions that characterised the late 1990s and early 2000s, investors increasingly sought out new approaches to investing that offered both security and potential growth. Principal protected notes (PPNs) were introduced to the North American financial marketplace at that time.
Part of the structured investment products category, principal protected notes (also known as Guaranteed Linked Notes), can be linked to a broad range of underlying investments. These investments include indexes, mutual funds, baskets of mutual funds, baskets of equities and even alternative offerings such as hedge funds.
At the heart of a PPN is a guarantee. Typically, PPNs guarantee 100% of invested capital, as long as the note is held to maturity. That means, regardless of market conditions, investors receive back all money they invested. In other words, at maturity, payout on the Note is the original principal plus any appreciation from the underlying assets (typically a mutual fund or group of funds, an index or basket of equities, and sometimes hedge funds or even commodities).
Principal protected notes offer an array of benefits such as:
- 100% principal protection
- high growth potential
- enhanced income potential
- weekly liquidity
- the opportunity to invest in a broad range of investments
- potential for leveraged returns
- capital protection regardless of what happens in the markets
