Principal Protected Notes - Protect your investment while still enjoying the benefits of stock market returns

April 15, 2019 | Thomas De Mello


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Reduce down side risk and still enjoy the benefits of market returns - PPNs are products which guarantee a full return of their principal amount at maturity, while providing the opportunity to benefit from the performance of equity markets.

Principal Protected Notes (PPNs) are products which guarantee a full return of their principal amount at maturity, while providing the opportunity to benefit from the performance of equity markets. Conservative investors who seek equity market exposure but have low risk tolerance are well suited to PPNs.

PPNs can be effective alternatives to GICs and other fixed income instruments. Returns can be paid through periodic fixed or variable coupon payments over the life of the note, or as a single payment at maturity. PPNs can be linked to a variety of underlying investments including indices, single stocks, portfolios of shares, industry sectors, commodities and currencies.

 

PPNs are well suited for clients who:

  • Require full principal protection at maturity
  • Would like equity market returns that provide the potential to earn a return that is greater than comparable fixed income investments
  • Want access to a variety of underlying investments
  • Seek growth or income in their portfolio
  • Need daily liquidity
  • Are comfortable with an investment term of 4 – 10 years

Benefits: 

  • Customized Equity Investing: PPNs can be easily customized to respond to current market conditions or investor preferences. Notes can be designed to provide growth or income. Both domestic and global markets can be combined to complement and diversify an investor’s portfolio.
  • Full Principal Protection: PPNs will provide a full return of the principal invested in a note, regardless of the performance of the underlying investments. Notes are bank deposit liabilities which are senior unsecured debt obligations of the Royal Bank of Canada.
  • Transparent, Passive and Formulaic: The return on PPNs is based on a formula so the current performance of the notes can easily be calculated at any point throughout the term of the note. The return formula is pre-determined before note issuance and is fully transparent.

Risks: 

  • The investor is exposed to the performance of the underlying equity investment. Although the principal is fully guaranteed at maturity, the note may not provide return in the form of coupons or a final variable payment at maturity.
  • The note may trade below the initial investment amount over the term of the note, particularly if the underlying equity investment performance is sufficiently negative.
  • Although investors might hold a note linked to an underlying equity investment that generates dividends, PPN investors do not receive these dividends.

There are a variety of options available for PPNs and they can even be customized to meet your individual investment objectives - Contact us today to learn more.