Discount certificates
Compact knowledge at a glance
Discount certificates
Compact knowledge at a glance
Discount certificates are one of the most popular investment products. With this type of investment, you can benefit from a price advantage compared to a direct investment by investing in an underlying asset at a discount. However, potential profits are limited by a cap.
Investing in discount certificates
Among the many types of certificates, discount certificates are very popular with investors because of their relatively simple conditions and investment discounts. Discount certificates can have stocks, indices, commodities, currencies, or interest rates as underlyings. You benefit from rising prices of the underlying asset. The discount indicates how much cheaper the certificate can be purchased compared to the underlying asset. This reduces the price risk and optimizes your return opportunities in slightly rising, sideways moving, and slightly falling markets.
When you buy a discount certificate, you receive a price discount compared to buying the underlying asset. This price discount reduces the price risk to a certain extent compared to a direct investment in the underlying asset. However, you also accept a cap, which limits the maximum profit from the start. In addition, there is a fixed maturity. For most discount certificates, the term is a few months up to two years. The certificate reflects the development of the underlying asset until the end of the term. However, in the event of a positive development of the underlying asset, the repayment is limited to the cap.
Discount certificates do not offer capital guarantee. If the underlying asset falls to zero, you will suffer a total loss. However, the price discount offers a buffer for potential losses in the amount of the discount.
Payoff profiles
The payoff profiles show the profit or loss of an
investment, if the underlying rises or falls.
Advantages
- In sideways moving or slightly falling or rising markets, investors achieve a better return with a discount certificate than with a direct investment in the underlying asset
- Investors receive a discount on the underlying price when buying the certificate compared to the direct investment in the underlying asset.
- The discount received at the time of purchase protects against losses of the underlying asset to a certain extent.
- The maximum achievable yield is already known at the time of purchase, and investors participate in price increases up to the cap.
Risks to be considered
- Profit opportunities with a discount certificate are limited to the cap.
- Losses are possible in the event of falling underlying asset prices.
- Investors bear the credit risk of the issuer, i.e., the risk of changes in creditworthiness or insolvency.
- This security is not covered by any deposit guarantee system. Investors are exposed to the risk that Erste Group Bank AG may not be able to meet its obligations in the event of insolvency (payment default, over indebtedness) or a regulatory order (bail-in regime). There is a possibility of a total loss of invested capital.