Editor’s note: This article was first published in November 2010. The Ibex 35 bonus cap launched in June 2010, the more than 1 million euros raised, the December 2011 maturity and the estimated 15% return with the Ibex at 10,000 points all refer to that issue.
Because many investors are wary and unsure where to put their money, innovation has reached investment vehicles: BNP Paribas has introduced a different kind of investment that stands out for being transparent, liquid, low-risk and “profitable“, and it has clearly been well received in Spain. What are “bonus” and “bonus cap” products?
Bonus products (bonus certificates) are listed on the stock exchange, so they are liquid. They are also cheaper than other investment products, because you do not have to pay redemption or maintenance fees, and they are simpler to operate.
Bonus products let you invest in a share for a limited period (18 months) so as to benefit from the full rise the market experiences. What makes this investment vehicle attractive is that it guarantees a minimum selling price at maturity, whether the share goes up or down, provided, of course, that the stock does not reach a certain downside barrier level.
If at any point the share touches or falls below that level, the investor receives in cash the value of the share at maturity, whether it is above or below the initial purchase price.
Another of their advantages is that they are quoted in real time on the Spanish stock exchange, so you can buy and sell them on the market at any time, just like a share. Both the trading and the tax treatment are identical to those that apply when you invest in the stock market in the traditional way.
Then there are bonus cap products. Bonus caps limit the profit you can make from a rise in the share in exchange for setting the barrier level further away.
At present, BNP Paribas markets bonus caps on the Ibex 35. It is worth noting that these products were launched in June 2010 and were very well received by investors, raising more than 1 million euros. Given that they mature in December 2011, with the Ibex at around 10,000 points the return on the bonus cap on this index would be 15%.
For investors who do not like risk, this is undoubtedly a good investment product, although, as with any investment, with the bonus cap the greater the risk, the greater the return.
Further reading
- How you can go broke investing in the stock market: busting the myths
- Investing in ETFs: definition
- Investing in warrants: definition
- Common mistakes when investing in the stock market
- Serious mistakes investors make when investing
Featured image: Pline, CC BY-SA 3.0, via Wikimedia Commons.
