Certificates as an interesting form of investment – even in turbulent times

The current general situation shows investors that investments in securities are always associated with risks. When stock prices crash, it triggers fears. Although experience shows that in the long term the trend always goes in one direction – namely upwards. And a situation with low values is the optimal moment to enter the market. But what if prices continue to fall?

In the face of such uncertainties, investors must weigh up opportunities for returns against security. It is precisely in such moments that alternatives that optimally combine security and returns when investing money are particularly interesting: certificate solutions, as offered by Zurich.

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.

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.

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.

With a maturity of five years, the Zurich Invest Certificate targets a broad audience. It is suitable as an innovative entry-level product for young people aged 18 and over, as their bank accounts currently yield very little interest. For "best agers" aged 50 and over, the certificate is suitable as an interim solution in financial and pension planning or as a reinvestment option for investments that are maturing. The product is also ideal for all those who want to supplement or diversify their insurance and investment portfolio. The minimum amount is CHF 10,000.

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.