What Are Specified Investment Products? SIPs Explained

Navigating the world of investing can be complex, especially when it comes to Specified Investment Products (SIPs). These financial instruments often have intricate structures, unique features, and varying levels of risk that set them apart from more straightforward investment options. So, what is Specified Investment Products, and why should investors be aware of these products?

What Are Specified Investment Products?

A Specified Investment Product, or SIP, is a category of financial instruments that often involves a higher degree of complexity and risk compared to standard investment options. These products are designed to cater to more sophisticated investors who are comfortable with advanced investment strategies and structures. The intricate nature of SIPs means they can offer unique opportunities, but they also require a thorough understanding of their mechanisms and risks.

Freepik | Specified Investment Products offer potentially higher returns but come with increased complexity.

Examples of Specified Investment Products

1. Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs)

Exchange Traded Funds (ETFs) are investment funds traded on stock exchanges, much like individual stocks. They can track various indices, commodities, or a mix of asset classes. While many ETFs are straightforward, some are designed with complex strategies or structures that classify them as SIPs.

Exchange Traded Notes (ETNs) are unsecured debt securities issued by financial institutions. They promise to pay a return based on the performance of a specific index or benchmark. ETNs can involve significant risk, especially if the issuing institution encounters financial trouble.

2. Futures

Futures are financial contracts obligating the buyer to purchase, and the seller to sell, an asset at a predetermined future date and price. They are often used for hedging or speculation and can involve significant leverage, which increases both potential returns and risks.

3. Structured Warrants

Structured Warrants are a type of security that provides the holder with the right to buy or sell an underlying asset at a specified price before a certain date. These instruments can be complex and are often used to speculate on price movements of the underlying asset.

4. Callable Bull/Bear Contracts (CBBCs)

Callable Bull/Bear Contracts (CBBCs) are short-term, leveraged investment products that provide exposure to the price movements of underlying assets. They are called “bull” or “bear” depending on the direction of the bet, and they can be called away if the price of the underlying asset reaches a certain level.

5. Certificates

Certificates are structured products that can offer customized investment strategies with predefined outcomes based on the performance of underlying assets. They can vary widely in terms of complexity and risk.

Examples of SIPs Listed on SGX

The Singapore Exchange (SGX) features a range of Specified Investment Products, including:

• Daily Leverage Certificates (DLCs) – These offer leveraged exposure to the daily performance of underlying assets.
• Exchange Traded Notes (ETNs) – As mentioned, ETNs available on SGX provide returns based on various benchmarks.
• Futures and Options – Both are commonly traded on SGX, providing various strategies for hedging or speculation.
• Structured Warrants – Available on SGX, these provide rights to buy or sell underlying assets at specified terms.
• Synthetic Exchange Traded Funds (ETFs) – These ETFs aim to replicate the performance of an index using derivatives and other instruments.

Examples of Unlisted SIPs

Freepik | pressfoto | Unit Trusts and Investment-linked Insurance Policies providing diverse risk and return levels based on underlying assets.

Some Specified Investment Products are not listed on exchanges but are still widely available:

• Contracts for Differences (CFDs) – These are agreements to exchange the difference between the opening and closing prices of a contract. CFDs are used for speculation and can involve high leverage.
• Foreign Exchange Margin Trading – This involves trading currencies on margin, providing the potential for high returns but also significant risk.
• Structured Deposits and Dual Currency Investments – These products combine elements of deposits and currency trading, offering customized returns based on market conditions.
• Structured Products: These are tailored investment solutions designed to meet specific financial goals and risk tolerances.
• Unit Trusts and Investment-linked Insurance Policies – These combine investment and insurance features, offering varying levels of risk and return based on the underlying assets.

Why Understanding SIPs Matters

Investors should be well-informed about Specified Investment Products due to their complexity and potential risks. SIPs are not suitable for everyone, and understanding their structure, features, and risks is crucial for making informed investment decisions. For those considering SIPs, it’s important to carefully review product details, seek professional advice if needed, and ensure that the investment aligns with personal financial goals and risk tolerance.

By gaining a deeper understanding of what is Specified Investment Products, investors can better navigate the diverse landscape of investment opportunities and make choices that align with their financial objectives.