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Breach, Trigger or Downside Protection Level

In many instances getting back the original amount one invests depends on the performance of an index. However, in some products a safety barrier is built in so, as long as the index does not fall more than a certain amount, the original investment is still protected.
The point at which the original investment is at risk is when the ‘trigger’, ‘breach’ or ‘downside protection’ level is reached. For example, some bonds linked to the XYZ100 index may have a 50% breach level. That means that as long as the associated index, XYZ100, does not fall more than 50% during the life of the product, one would get his/her original investment back in full, along with the growth or income due.

The Positives of Investing in a SIP

• How the investment performs does not depend on an individual fund manager and his or her ability to outperform the market. This is because the investment will be directly linked to the market.

• The income one can receive is usually greater than from deposit accounts and one can balance the risk to his/her initial investment with the need for income.

• The growth options can result in a positive return even when investing directly in an index or individual stocks would have resulted in a loss.

• One can achieve growth rates which are far higher than the growth from stock markets, while still protecting the investment unless markets fall significantly.

• Both the maximum one can gain and the maximum one can lose are clear - there is no other share-based investment where one knows the and worst-case situations before committing his/her money.

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* Contributed by -
Vipin Arora,
B.Tech. (Polymers), H.B.T.I. Kanpur,
MBA (Batch 2004-06),
Dept. of Management Studies, I.I.T. Roorkee.