HOW TO CONSTRUCT A FIXED COUPON NOTE (FCN)

Rajiv Aggarwal

Chapter 3 in Fixed Coupon Note:High Returns and Low Risk, 2020, pp 57-94 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Usually, FCNs are created by Product teams in Wealth Management Firms. They will come up with an idea and the Relationship Managers will reach out to their clients. A typical product marketed by Wealth Managers has three underlying stocks usually from the same sector. For example, all three underlyings are either from Technology or Financials. The communication from the Relationship Manager will say something about the attractiveness of the sector and the Investor can choose to invest as much as he wishes. This is something like buying off-the-shelf products. A typical Investor tends to overlook not only the finer points like frequency of auto-callability, but even the selection of underlyings is not paid due attention. Many a time, the proposal will have two good stocks and the third stock is such that the Investor is only vaguely familiar with it. Since the Investor is carrying the risk of getting the delivery of the worst performing stock, due attention needs to be paid to the stock selection. In fact, the Investor should think that he is going to buy that very stock and proceed only if he is comfortable with the stock.

Keywords: Investments; Wealth Management; Structured Products; Reverse Convertibles; Autocallables; Investors; Investment Bank; Equity; Fixed Income; Bonds; Index; Phoenix Note (search for similar items in EconPapers)
JEL-codes: G11 G24 (search for similar items in EconPapers)
Date: 2020
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