M6A — CM-SIP: Specified Investment Products (Derivatives and CIS)
Structured Deposits and Other Structured Products
Chapter 7 covers bank-issued structured deposits and related short-dated products: dual currency investments, range accruals and accumulators. A structured deposit swaps a known interest rate for a return that depends on an underlying, usually with principal repaid at maturity if the bank stays solvent. The exam tests how the structure is funded (interest forgone buys the option), participation, cap and minimum-return arithmetic, range accrual yields, DCI conversion, early-withdrawal and callable risks, and the fact that none of these products is insured.
7 sections·~3 min read
✓Checked against the IBF CMFAS CM-SIP syllabus chapter 7 and its learning outcomes in the IBF CM-SIP Summary of Updates Jan 2026 v1.1 (Case Study 12.5); MoneySense 'Understanding structured deposits'; MoneySense 'Understanding deposit insurance' (updated 2 Jul 2026); checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
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Must-know for the exam
✓Structured deposit: return depends on an underlying (equities, bonds, interest rates, FX, credit). Principal is repaid at maturity only if the bank does not fail (MoneySense).
✓Not insured: MoneySense lists structured deposits, structured notes and foreign currency deposits as outside the Deposit Insurance Scheme. Insured SGD deposits are covered up to S$100,000 per depositor per Scheme member (as at 13 Sep 2026).
✓Early withdrawal can return less than principal; callable deposits create reinvestment risk (MoneySense).
✓Funding: interest forgone pays for the option. $100,000 at 3% gives about $3,000; after discounting ($97,087 needed today) and a $500 bank margin, about $2,413.
✓Participation = option budget / option cost. Budget 3%, cost 5%: participation 60%. Caps, averaging and worst-of baskets make options cheaper and raise headline terms.
✓Range accrual rate = max rate x time in range + min rate x time out of range. 4.8% for 4 of 6 months, 0.6% otherwise: 3.4% a year.
✓IBF case study 12.5: narrower or skewed range, longer maturity or lower minimum yield make the structure cheaper (higher maximum yield). Double no-touch pays the minimum if either barrier is ever touched.
✓DCI: investor sells a currency option for enhanced yield; if the alternate currency weakens past the strike, principal is repaid in that currency at the strike. SGD 130,000, strike 1.3000, fixing 1.2500: USD 100,000 worth SGD 125,000.
✓Accumulator: OTC; buys shares at a discount until a knock-out price, often doubling purchases below the strike. Gains capped, losses large.
Why this matters in the exam
•Structured deposits are sold over the bank counter to conservative savers who may read 'deposit' as 'safe'. Questions target that gap: insurance, bank credit risk, early withdrawal, and whether the payoff fits the client's view and horizon.
How a principal-protected deposit is built
•The bank sets aside enough to repay principal at maturity and spends the remaining interest on an option. Low interest rates or high volatility shrink what the budget buys.
•Participation: 70% of a 12% rise = 8.4%.
•Cap: 100% participation capped at 10%; index +18% pays 10%.
•Minimum: higher of 0.5% or 80% of the rise; index +0.4% pays 0.5%.
•Digital: 4.5% if the index is at or above its start, else 0.25%; index -3% pays 0.25%.
•Compare A (100%, cap 12%) and B (60%, no cap): equal at a 20% rise; above 20%, B pays more.
•Trap: 'protected at maturity' means nothing before maturity. Early redemption = deposit value + option value - unwinding cost, for example 95,500 + 2,200 - 300 = $97,400.
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