Structured Funds

AAA

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.

RELATED TERMS
  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Hybrid Security

    A security that combines two or more different financial instruments. ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Structured Note

    A debt obligation that also contains an embedded derivative component ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
Related Articles
  1. Options & Futures

    Are Structured Retail Products Too Good To Be True?

    Spot a rotten investment before you get seduced by its sweet promise of profit.
  2. Options & Futures

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  3. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  4. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  5. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  7. Professionals

    Index or Target Dates in 401(k)s: Which is Better?

    A common question is whether or not plan participants should choose index or target date funds in a 401(k). The answer depends on different scenarios.
  8. Investing

    6 Reasons Why Every Investor Should Consider ETFs

    Once you understand the benefits of ETFs, you’ll see how they could be an exciting and smart way to help meet your financial goals. Here some key facts.
  9. Term

    What's an Investment Advisor?

    An investment or financial advisor makes investment recommendations and analyzes securities.
  10. Investing News

    Understanding How Mutual Funds Pay Dividends

    The process by which mutual fund dividends are calculated, distributed and reported is fairly straightforward in most cases. Here's a look.
RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  6. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!