DEFINITION of 'Structured Funds'

A fund that combines both equity and fixed-income products to provide investors with a degree of both capital protection and capital appreciation. These funds use fixed-income securities to give the fund capital protection through principal repayment along with the added gain of interest payments. The fund uses options, futures and other derivatives, which are often based on market indexes, to provide exposure to capital appreciation.

BREAKING DOWN 'Structured Funds'

These products are attractive to investors looking for downside protection who would also like to see gains from upside movements in the markets. Depending on the fund, the exact products and guarantees will vary.

For example, if an S&P 500 structured fund protects 80% of its principal, this means that it will invest 80% of its funds in fixed-income products with little chance of falling below the principal amount. The rest of the fund is invested in derivatives that are exposed to the S&P 500 index. Investor will gain as the S&P 500 advances and will lose as it falls, but the fund won't fall below 80% of its starting value.

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