Capital guaranteed & capital protected

Complex structured products

Providers of 'capital guaranteed' and 'capital protected' structured products usually promise to at least repay your original investment at the end of a minimum period. However, the nature of the protection varies and some products have clauses and performance hurdles that may even lead to the loss of your capital.

This page explains what capital protected and guaranteed products are, and the limitations and costs associated with their promises and guarantees.

What are capital guaranteed and capital protected products?

Structured products promoted as having capital guarantee or capital protection typically combine a 'safe' and a 'risky' asset into one product structure.

For example, a safe asset, such as a bond, enables the issuer to promise the return at maturity of at least some, or all, of the investor's original investment. This feature is promoted as the 'capital protection', or sometimes the 'capital guarantee'.

These assets may be packaged with a risky derivative investment such as options. The derivatives are used to create some level of participation in the performance of shares, commodities or other assets. The value of the investment at maturity depends on the performance of these 'reference assets'.

This is an example of how one of these products may be structured. Other products may have different asset class exposure as well as different terms and conditions that apply to the repayment of your capital as well as any investment returns. These differences make it difficult to compare these products.

Not bank deposits or annuities

Capital guaranteed and capital protected structured products should not be confused with more conservative investments that may also be described as 'protected' or 'guaranteed'. This includes life insurance annuities, savings accounts and term deposits with an APRA regulated bank, building society or credit union.

Capital guaranteed and capital protected structured products are not:

  • protected accounts subject to the government's deposit guarantee
  • guaranteed annuities, which are provided by APRA-regulated entities
  • 'capital guaranteed' superannuation funds.


With capital guaranteed and protected products, higher promised returns usually come with higher risks. We recommend that, before you invest, you take extra care to understand the nature and risks of these complex structured products. If you don't understand how the investment and capital protection is structured and how promised returns are achieved, you should not invest.

Can any investment be guaranteed?

The labelling or description of these structured products can create a perception of safety that, in some cases, is inconsistent with the product's features and risks. There are often significant qualifications and conditions associated with the 'guarantee' or 'protection'.

Some products promise that you should get back at least the dollar value of your initial investment even if financial markets turn sour. For example, a capital protected investment linked to the top 200 Australian shares may pay investors a return equal to 80% of the cumulative growth in the S&P/ASX 200 share index over 5 years. The promise is that even if the index makes a cumulative loss over this time, you will still get back the original amount you invested at the end of the 5 years.

But no investment is 100% secure. In certain extreme circumstances, for example, if the company providing the guarantee goes belly-up, you can still lose money with these investments.

Another type of more complex investment, also linked to shares, may pay investors an agreed rate of interest that is typically higher than conservative investments, such as term deposits. However, the value of the investment at maturity may be linked to the performance of shares, so your capital is not protected and the risks are much higher.

Before you invest, make sure you understand the return being offered and whether it will compensate for the risks and what, if anything is being protected.

See goals and risk tolerance and risk and return for more information about understanding and managing risk.

Case study: Don considers a 'capital at risk' product

Self-employed man considering a capital at risk productDon is the trustee of his own self-managed superannuation fund (SMSF). He wants to maximise his fund's returns, so he looks for an investment that will pay more than his fund's term deposit account. He heard about a structured product that was promising returns of 8% a year.

When he looked at the product in detail, he discovered that, despite the 'guaranteed interest rate' and 'conditional capital protection', his capital would only be returned if none of the underlying shares fell by 40% or more. He was also suspicious about how the returns were generated. Even his financial adviser had trouble explaining the product to him. Don also thought that the fees were not transparent. Don decided not to invest for these reasons.

Weigh up the benefits and risks of capital guaranteed investments

Even if you are confident of the security of the guarantee or protection, you need to weigh up the cost of the product against the benefits it can provide.

Structured products vary from short-term to long-term investments (approximately 1 to 10 years). Early redemption may be possible. However, break costs (based on the current 'mark to market' value of the embedded derivative), exit fees and a cancellation of the capital protection feature also often apply. Some issuers only allow redemptions on a monthly basis and, in some cases, redemptions can take 6 to 8 weeks.

Any capital protected investment linked to an investment market is usually only guaranteed or protected if you leave your money for a set period of time (often 5 to 10 years). If you want to invest for this time period, a diversified share investment may give you similar returns, and may cost you less.

While some structured products have a much shorter timeframe, for example, 1 to 2 years, capital may be at risk rather than protected. Inflation can also eat into your capital even if falling investment markets don't.

For example, imagine you invested $100,000 and under the 'capital guarantee' you got your money back in 5 years. If annual inflation was 3%, an investor would want to receive at least $115,927 on an original investment of $100,000 at the end of 5 years, to keep pace with inflation.

Read the investor guide

Before you invest, read the investor guide Get the facts: Capital guaranteed or protected investments and ASIC's Report 340, 'Capital protected' and 'capital guaranteed' retail structured products.

Investments promoted as having capital protection or capital guarantees might sound safe, but the labels can be misleading. They are more complex than many other types of investments and the risks can vary between products. 

Related links

Last updated: 24 Oct 2018