Principal protected investments are designed to limit the downside risk for investors while providing some upside potential. They typically invest in underlying assets while using derivatives or insurance to guarantee that investors will get back at least the original principal amount invested at maturity. These investments can provide stability but often have capped returns.
Key features of principal protected investments
Principal protected investments have features like guaranteed return of principal at maturity, exposure to potentially higher returns than fixed income, use of derivatives or insurance to protect principal, and return caps that limit upside potential compared to direct asset ownership.
Who should consider principal protected investments
These investments may appeal to risk averse investors who want stability but some growth potential. They are not ideal for maximizing long term returns.
In summary, principal protected investments aim to limit losses while offering some profit potential by guaranteeing return of the initial investment amount.