Investment certificates are modern structured products. They represent an alternative to investment in equities or bonds and are linked with same risks. From juridical point of view, certificates present debentures - that means the issuer can temporarily dispose of investor's financial resources.

Basics of certificates comprises the underlying instrument which could be shares, market indices, equity baskets, bond indices, currencies or commodities. That means the value of certificate always depends on the price of this asset. Type of certificate tells us how the change in asset's value reflects the market price of certificate. If certificate is issued on some stocks, the holder does not dispose of stockholder's rights; although some certificates represents the right for dividend payout.

Trading runs on the market or directly with issuer. The most famous issuers are the biggest German and Austrian banks (for example : Deutsche Bank, Commerzbank, Sal Oppenheim, Raiffeisenbank). There are about 35.000 different certificates available for trading at the Stuttgart derivatives market called EUWAX. Certificates have mostly maturity of several years, last days there are those which are called open-end certificates, they have unlimited maturity.

Types of certificates

• Index
• Bonus
• Discount
• Guaranteed
• Outperformance

Certificate advantages

• Transparency – investor always know where does he invest his money (exact structure of underlying asset is known) and how certificate price is derived. You can always check the price with broker or issuer himself real-time
• Liquidity – issuers commit to continuously show "bid" and "ask" prices (market making) a thus ensure functionality of the market
• Universality – with certificates it is possible to profit on growing (bullish), falling (bearish) or stagnant market
• Adaptability – prices of certificates range from 10 EUR - 100 EUR, minimal tradable amount is usually 1 piece, what gives also opportunity for smaller investors
• Affordable fees – with most of the certificates you pay only purchase or sell fee, trading will cost you less than investing into shares or funds
• Tax optimization – 6-months tax test also applies to the certificates, that means if your sell certificate after this period, you don't have to pay tax from it

Certificate risks

• Credit risk – represents risk that issuer will become insolvent and will not be able to fulfill his duties. In that case client is in danger of loss of his capital
• Market risk – is the same as with shares, funds and others, it means the risk of loss due to change of market prices and also changes in values of financial instruments
• Currency risk – this risk relates to all certificates issued in foreign currency; danger of fall of the investment currency against the home currency
• Inflation risk – bases in permanent devaluation of money, every investment comes under it in different way

You may find more information about investment certificates in the brochure Investment certificates (CZ) written by Ing. David Rozumek (The Czech Securities Commission) and Ing. Martin Svoboda (Zertifikate Journal) or on the website www.Zertifikatejournal.cz