Please enable JavaScript.
Coggle requires JavaScript to display documents.
Structured Products - Coggle Diagram
Structured Products
Overview
-
-
-
investment products manufactured by financial institutions that link returns to underlying asset (stock index / bond oool / mortgage loans); ex index linked GIC might pay interest on how much SPTSX 60 rises, if index up 10% and participation rate is 60% then interest is 60x10=6%; safety of principal (GIC) + growth potential (stock index)
Purpose = customized risk return profile; less risk than stocks but better returns than fixed income; passive (bank designs it)
-
-
Split Shares
Risks
-
-
div cuts = underlying comp can reduce divs; split corp might need to sell assets to pay pref shareholders
-
-
split share corp buys div paying stocks and splits into two parts = pref share component (divs paying for income seeking people) + capital share component (capital gains for growth seeking people)
DEF share $50 div $1.5; pref share sold for $20 receives dics $1.5; yield = 1.5/20=7.5%; capital share = sold for $30 - no divs only cap gains
if sarah buys cap component @ 25 rises to 30 then gain% = (30-25)/25=20%; pref component @ $7 and gets $0.42 divs so div yield = 0.42/7=6
tax = pref share (div income + div tax credit); cap share (capital gains + 50% inclusion rate); corp (no taxes paid , profits flow through to investors)
-
Market Linked GICs
Structure
deposit investment issued by bank where principal is 100% guaranteed + return depends on perf of stock index / ETF; safety of GIC + potential growth
issuer (banks); 3-5yrs; CDIC covered; not redemable; principal guaranteed @ maturity; variable return; taxed as interest income
money dep into GIC by bank; interest linked to market index; ex you invest 10k for 5yrs in GIC, market rises 30%, participation rate is 70% you get 30x70=21% or cap rate which suppose is 20% so even if market earned 21% you only get 20%
Calculating Returns
index growth = (ending level - beginning level) / beginning level; ex tsx 12614 > 16308 in 5 yrs so (16308-12614)/12614=29.28% after getting this apply participation or cap rate
-
Tax Implications
taxed as interest income ; taxed only at maturity deferred until maturity but all interest is taxed in one yr