CHECKLIST OF FEATURES
Checklist of Features
- Low minimum investment: $1,000 minimum initial purchase; $1,000 increments thereafter.
- High coupon: Typically in the range of 8% to 30% per year.
- Steady income: Regardless of the performance of the underlying stock, the stated amount of interest is paid, usually on a monthly basis.
- Short-term maturity: Three-month, six-month or one year.
- High credit quality: Typical issues are from banks with a credit rating that is investment grade or better.
- Not principal-protected: Principal may be reduced depending on performance of the underlying stock(s).
- Contingent downside protection: A "knock-in" feature providing a set amount of downside protection. (See the description below.)
The Knock-In Feature
The Knock-In feature provides the investor with a certain amount of downside protection. The Knock-In level (also called the downside barrier) is set at a predetermined percentage of the initial share price.