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Tutorial: Structured bonds and notes

What are Structured bonds?

Structured bonds designated also as Premium Bonds are bonds with the nominal value of CZK 10,000 whose amount of yield depends on the development of prices of selected underlying assets. A minimum of 100% of the nominal value is paid out on the maturity date. This guarantee does not apply to the risk of the possible failure of the issuer.

What are Structured Notes?

Structured notes designated also as Premium Notes or PN differ from structured bonds because less than 100% of the nominal value can be paid out on the maturity date depending on the development of the underlying assets. There are two types of structured notes according to the type of the capital guarantee. Products with limited guarantee: paid out on the maturity date at least the beforehand given percentage of the nominal value (e.g. min. 90%), so the client knows in advance the maximum possible loss. Products with a conditional guarantee: at least 100% of the nominal value paid out on the maturity date, if the capital protection barrier is not broken which is typically based on the development of the underlying asset (e.g. the underlying asset must not fall by more than 50%). If the barrier is broken, the client suffers loss corresponding to the loss of the underlying asset for the observed period.

How do Structured Bonds work?

The product’s yield is normally paid out on the maturity date together with the bond’s nominal value. The price for which bonds are purchased is also important for the actual investment yield. The price of the structured bond is affected by the development of market interest rates and the development of the underlying assets determining the amount of the premium. The yield till maturity is not calculated for structured bonds.

How do Structured Notes work?

The yield amount of Structured Notes could either be known beforehand and the entire nominal value or a part thereof is paid out depending on the development of the underlying assets. Or the yield amount, just as for Structured Bonds, is not known beforehand and depends on how well the underlying assets perform. Unlike Structured Bonds the price is less dependent on the development of interest rates, but is more sensitive to the development of underlying assets, especially if the underlying asset approaches the capital protection barrier. The yield to maturity is not calculated, however in structured notes with a fixed yield, an aliquot interest return (AIR) is count on.

Sale and holding of foreign Bonds and Notes

Income from holding and sale of foreign bonds and notes (ISIN does not begin with CZ....) is not taxed by the final withholding tax, but becomes subject to individual taxation, and if they are not exempt from tax (exemption comes into consideration only for income from the sale of a bond or note), the taxpayer is obliged to state this income in the appropriate amount in a tax return.

Your benefits

The purchase of a Structured Bond allows you to invest in the stock or commodity market without risk of loss of the invested amount for the period known beforehand. The payout of the interest yield and nominal value of the bond is guaranteed by its issuer.
The purchase of a note will allow you to invest in the stock or commodity market with the possibility of gaining an attractive yield which is significantly above the level of term deposits and savings accounts. The client risks the loss of capital, however the maximum loss is either limited beforehand, or is effectively reduced thanks to the conservatively set barrier of the likelihood of loss. A popular and often used property of these products is the option of automatic early repayment. However the maximum duration of the investment is always known.

Your advantages

  • Thanks to a fixed maturity date, further investments can be planned. Thanks to an automatic early repayment, an early return on the invested funds together with an attractive yield can be obtained.
  • Opportunity to share yields of stock or commodity markets without a risk of losing the invested amount.
  • Bonds and notes can be bought at Česká spořitelna branches or through SERVIS 24.

You should know

  • Before maturity the price of a structured bond or note may, depending on the development of the interest rate and underlying assets, fluctuate above or below its nominal value. The bonds and notes are kept on record at Česká spořitelna which purchases and sells bonds and notes by transfer of securities in the register of shareholders. The share in a bond or note will be credited to the investor’s asset account within 3 working days from ordering the purchase, if the investor makes the payment together with the order.
  • Price for sale procurement for notes, premium, subordinated and most other bonds it is 2% of the trade amount. For mortgage bonds it is 1%.
  • Issue additions of bonds and notes issued by Česká spořitelna are available at branches or at the website of Česká spořitelna.

Purchase Conditions

  • Bonds and notes can be bought for prices as quoted in the current exchange rate list of bonds and notes.
  • To buy a bond or note, you need to have an asset account of investment instruments at Česká spořitelna. Opening an asset account is free of charge, this can be done at any branch of Česká spořitelna, the investor needs to have a valid identity card, and a legal entity documents on legal subjectivity.
  • To buy a bond or note, it is not necessary to have a cash account at Česká spořitelna. Funds for making the purchase can be sent to the relevant collection account from any crown account. If this is a primary subscription of a bond or note, an investment account with a sufficient balance at ČS is required to pay for the order of the subscription.
    There is no fee for the purchase of bonds or notes regardless of the purchased amount. In case of early sale before maturity the bank charges a price for the sale procurement according to the valid Price List.

Who can purchase?

  • A citizen of the Czech Republic or a foreign national over the age of 18 years (legal guardian in case of a minor).
  • Legal entity, natural person-entrepreneur.
  • Other subjects established under the laws of the Czech Republic, (foundations, movements, political parties).

How do structured bonds and notes react to…

… growth of underlying assets prices?
The hitherto issues are targeted at the growth of underlying assets prices. The increase of underlying assets prices is therefore positive news for the amount of the yield.

… decrease of underlying assets?
The hitherto issues are targeted at the growth of underlying assets prices. The decrease of underlying assets prices therefore may have a negative impact on the amount of the yield.






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