Investors can make many and often expensive mistakes, especially in phases of stock market fluctuations. This is precisely why it is worth looking at alternatives to direct investments.
If dividends are the new interest, then the capital market environment offers a more diverse range of products than before. Structured bonds are among the most popular products that are now coming into focus. After all, with more than 33 percent, they combine by far the largest share of structured investment products. That makes them a tried and tested alternative, whether as a basic investment or as an addition.
A reverse convertible bond is a security with fixed interest payments – but with one special feature: it is only at the end of the term that it is decided whether investors are to receive 100 percent of the nominal value or a fixed number of the underlying share. In the case of index bonds, an equivalent cash settlement is usually made instead. Like conventional bonds, reverse convertibles pay out a fixed coupon. It is independent of the price development of the underlying and is usually well above the market interest rate. In this way, the investor is rewarded for assuming the price risk of the underlying share.
When does investing in a reverse convertible make sense?
Investors can opt for a reverse convertible bond if they assume that the price of the underlying stock will not change materially during the term. The base price of the reverse convertible defines which price mark should not be undercut: As long as the share is listed on this or above on the valuation day, investors always realize the maximum return: They receive a repayment amount that includes the full face value in addition to the fixed interest coupon.
Even so, structured bonds are not without risk. Investors should always bear this in mind when making investment decisions.
If you would like to find out more about individual structured products, just have a look at the following link:
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