Protected Notes feature the integration of zero-coupon bonds and financial derivatives to protect 100% of the principal at maturity. The return from a Principal Protected Note is dependent on the performance of an underlying financial instrument.
Typical financial instruments linked to a Principal Protected Notes include equities, interest rates, credit, market indices, fixed income instruments, foreign exchange rates and a combination of financial products. They can be designed to protect full amount of invested capital with the potential to earn a higher return based on the underlying performance. They are usually issued by a financial institution and investors are exposed to the credit risk.