The current general climate has made it particularly clear to investors that investments in securities are always exposed to risks that cannot be foreseen. Who, in the fall of 2021, would have expected a war in Eastern Europe? Who would have bet that the stock markets would put in such a good performance in the second year of the pandemic? The consequences of such events are exchange rate fluctuations that can be extremely severe.
In view of such imponderables, investors have to weigh up potential return opportunities against security: take more risks and accept losses in return, or give greater weighting to security and accept a lower possible return. There is, however, an alternative to these scenarios, which optimally combines security and returns for investing money: certificate solutions, as offered by Zurich.
Participate in performance
In contrast to shares and funds, but also to traditional debentures such as bonds, certificates are a more recent type of security. They were first offered on the market in the early 1990s, but since then they have evolved rapidly and are now available in countless different versions. Nevertheless, they are rarely used by private investors – unjustly, as a look at the details can show.
The performance of a certificate is primarily dependent on the development of the underlying asset. Underlying assets can be, for example, individual shares, share baskets, indices, commodities or currencies. With a certificate, investors do not acquire ownership rights in a company as in the case of a share, but instead lend money to the issuer, usually a bank. Unlike corporate or government bonds, they do not receive fixed interest in return, but participate in the performance of the underlying asset.
A basket of strong Swiss shares
As with other investment products, investments in certificates are also associated with risks. When designing its two products, the "CapitalCertificate" and the "Zurich Invest Certificate", Zurich paid special attention to risks and their minimization. Both certificates have an index as their underlying asset that only contains Swiss blue chips (shares with a particularly high value) from various sectors with an even weighting. This guarantees a well-diversified investment and eliminates the currency risk. The same criteria were used by Zurich for choosing the issuer of the certificates.
The benefits of certificates: extra returns and strong protection against losses
With other investment products, such as funds and shares, private investors only profit if the securities perform well, i.e. move into the profit zone. The two Zurich products, however, also offer investors reasonable protection from losses if the index does not perform well. This is ensured using sophisticated mechanisms that combine attractive potential returns with a smart protection concept and profit hedging:
- There is an extra return on the performance of the index.
- Extensive capital protection secures the investment, even in the event of negative performance, up to a defined threshold.
- The profit protection guarantees a minimum profit for both products, as soon as the performance of the index reaches a certain threshold towards the end of the term.
These mechanisms not only offer investors additional potential returns, but also protect their investment in the Zurich products from greater loss in the event of suboptimal performance. In this respect, certificates have a clear advantage over funds, which are popular with Swiss investors. Those who invest in funds profit from the positive price development of the funds, but also participate in the negative performance. An investment in Zurich products, meanwhile, increases the chances of return while minimizing the risk of loss. If there is a price correction during the term, investors do not have to accept a loss up to the capital protection limit and can participate in the event of a gain.
Investment product with and without life insurance
With a maturity of ten years, CapitalCertificate is aimed at investors between the ages of 50 and 65. They benefit from the advantages of a life insurance policy (income tax-free payout, protection in the event of death, bankruptcy privileges and inheritance privileges) coupled with the benefits of a certificate investment. In case of death of the insured person during the contract term, beneficiaries are paid out the market value of the certificate, but at least 101% of the investment. The minimum amount is CHF 20,000. The stamp duty of 2.5%, which is payable on the single premium in the case of a life insurance policy, is covered by Zurich.
What you should know about certificates
A certificate is a type of debenture. It is a security which entails you giving a third party, usually a bank, a defined amount for a certain time, with a fixed repayment date. In this respect, certificate solutions function somewhat like loans, but are more flexible in terms of maturity, interest and sale. Certificates can have maturities of up to 30 years, and they can be traded like other securities.
Anyone who buys a certificate basically grants the issuer nothing other than a long-term loan, meaning that investors do not become shareholders, but rather creditors without any voting or membership rights. The issuer undertakes to repay the creditor the amount invested at the end of the term.
Debentures come in various forms. The most important are:
- Bonds, which come in a variety of forms
- Federal bonds, also known as government bonds or public bonds
- Certificates, also available in countless versions and forms