Q: What is a kick-out feature?
A kick-out or autocall feature has been a popular feature of many structured products in recent years and allows for the investment to mature early.
A kick-out or autocall feature allows for the investment to mature early if the index is at a defined level at set anniversaries in investment term.
For example, a six-year autocall product might offer again of 10 per cent a year with a maximum of 60 per cent return after the six years, maturity occurring on the first anniversary that the index is at or more than its initial index level.
So, if the investment is based on the FTSE 100 at a strike level of 5500, if at the first anniversary the level is at or above 5500, the product comes to an end giving the investor 10 per cent return.
If the FTSE is less than 5500 at that point the investment continues and at the second anniversary if the FTSE is at or more than 5500 the investment matures giving the investor 20 per cent.
This continues each year, adding 10 per cent per year until the end of the six years when if the FTSE is at or more than 5500 the investor receives a 60 per cent gain, or their original capital only if the FTSE is less than the initial index level unless it is 50 per cent below, in which case the loss is in line with the fall in the index.
Ian Lowes, managing director of Lowes Financial Management and founder of StructuredProductReview.com, said these products have proven very popular in recent years as a potential means to achieve high or even low double digit returns in uncertain and low growth markets.