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What Are Structured Funds?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 November 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Structured funds are investment funds that are configured with an intentional mixture of both fixed-income securities as well as equity products. The general idea behind this type of fund configuration is to provide the investor with the security that is provided by the fixed-income assets, since those assets can help offset potential losses sustained with the up and down movement of the equity securities. At the same time, the inclusion of the equity securities allows the investor to generate significant returns when and as those equities appreciate.

A number of different types of equity-based securities can be used as part of structured funds. Depending on whether the mindset of the investor leans toward the conservative, a given fund may utilize futures contracts, commodity options, bonds with variable rates, and different types of derivatives as at least half of the total securities included in the fund. When balanced to best effect with other investments that provide some sort of fixed return, the investor is more likely to enjoy some income from the fund, even during economic periods that see little to no growth with the equity products.

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The balance between fixed-income and equity products within structured funds will depend greatly on the level of risk that fund managers and investors want to maintain for this type of opportunity. Funds that are intended to primarily provide consistent returns in just about any economic situation will likely focus more on the fixed-rate investments, while still allowing some room for the riskier equity-based products. When the goal is to provide a basic cushion or foundation using the fixed-rate products while still providing the chance to focus more on the riskier equity products, then the percentage of the fund that is allocated to fixed-rate products will be reduced. With any approach to creating structured funds, the goal is to match the balance of securities held with the investment philosophies and collective goals of the investors, creating a balance that can range from safe and conservative to something more adventurous.

As with any investment approach, structured funds will carry some risk. This is true even if the funds under consideration are primarily composed of fixed-rate securities that prevent the value from falling under a certain amount. For this reason, investors who are interested in participating in structured funds should look closely at the combination of securities, consider the performance of each of those securities, and determine if the investment is in line with their financial goals before proceeding.

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