In the vast segment of the investment certificates two of the categories are preferred by investors, the bonus and the express, united by the fact of having a warranty protection conditioning of repayment of principal and the payment of premiums in relation to the achievement or non achievement of certain price barriers of the underlying. Here is a summary of the main features.
Bonus Certificates are investment certificates that pay a coupon for a predetermined duration if the underlying drops below a certain threshold price, in most cases equal to 70% of the price of the underlying issue of certificate. For example, a bonus certificate could pay a semi annual coupon of 6% as long as the underlying does not fall more than 20%. If this level is exceeded, one can claim to cash the bonus and the instrument becomes a standard benchmark which is an instrument that is not protected to capital. In practice, the bonus certificates allow both to participate in the rising of the underlying to limit the risk and in the event of a fall.
Express Certificates are another type of investment that reimburses the certified in advance capital plus a premium if the underlying reaches a certain price threshold or if the underlying rises above a certain number of the initial level. However, if the investor comes to maturity the nominal value is repaid when the underlying is in that moment below the initial value.
Both tools are proving very popular with investors because they go to the desire to make a profit even when the stock market goes in a direction not perfectly predictable. In the past people loved the equity protection products which offered a guarantee of absolute security of capital in the event of a fall of the price lists in exchange for a waiver of the increase in case of positive performance of the underlying. The equity protection is suitable for investors with bullish expectations but with little risk appetite. Today, however, the bonus and express certificates are considered a cheaper type of equity protection. Their prices on the secondary market decrease when the forecasts say that the volatility will last a long time. For those who are convinced of the contrary, it is the best time for shopping.