A structured note is basically a debt security issued by financial institutions with a return based on the performance of equity indices, a single equity, a basket of equities, interest rates, commodities or foreign currencies. Its return is linked to the performance of an underlying asset, group of assets or index.
All structured notes have two underlying components: a bond component and a derivative component. The bond portion of the note takes up most of the investment and provides the principal protection. The rest of the investment not allocated to the bond is used to purchase a derivative product and provides upside potential to investors. The derivative portion is used to provide exposure to any asset class.
Structured notes are perfect for people that want to diversify their assets with a short term investment product that carries relatively low risk.