Specified Investment Products: Meaning, Examples, Risks and Regulation
Specified investment products are complex financial instruments that often contain derivatives, structured payoffs, or leverage features, making them harder for retail investors to understand. Because of their complexity and higher risk, specified investment products are subject to stricter regulatory safeguards in several jurisdictions.
On BusinessWestern.co.uk, we aim to break down financial topics in a clear and practical way. This guide explains specified investment products, their key characteristics, examples, regulatory protections, and why they matter for modern investors in 2026.
What Are Specified Investment Products?
Specified investment products are financial products with structures, features, and risks that are more complex than traditional investments like ordinary shares or basic bonds.
They often:
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Contain derivatives
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Use structured payoff formulas
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Involve leverage or embedded options
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Require higher investor knowledge
Because specified investment products can be difficult for retail investors to fully understand, regulators such as the Monetary Authority of Singapore (MAS) classify them separately and require knowledge assessments before trading.
In simple terms, specified investment products are designed for investors who understand advanced financial instruments and can tolerate higher risk.
Key Characteristics of Specified Investment Products
Specified investment products share several defining features that distinguish them from standard investments.
Complexity
Specified investment products often have intricate structures and payoff mechanisms. Their returns may depend on formulas linked to indices, commodities, currencies, or other underlying assets.
Use of Derivatives
Most specified investment products contain derivatives such as options, futures, or swaps embedded within the structure.
Higher Risk Profile
Because of leverage, volatility exposure, or non-linear returns, specified investment products can result in significant gains or substantial losses.
Regulatory Oversight
In markets like Singapore, regulators require safeguards such as Customer Account Review (CAR) or Customer Knowledge Assessment (CKA) before investors can access specified investment products.
These features make specified investment products fundamentally different from simpler Excluded Investment Products (EIPs).
Examples of Specified Investment Products
Specified investment products can be divided into listed and unlisted categories.
Listed Specified Investment Products
These are traded on exchanges and include:
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Structured Warrants
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Daily Leverage Certificates (DLCs)
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Futures
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Options
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Exchange Traded Notes (ETNs)
These specified investment products are accessible via brokerage accounts but may require investor qualification checks.
Unlisted Specified Investment Products
These are not exchange-traded and often distributed by banks or financial institutions:
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Structured Notes (equity-linked or credit-linked notes)
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Certain Unit Trusts
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Investment-Linked Insurance Policies
Unlisted specified investment products often contain embedded derivatives and customised payout structures.
How Specified Investment Products Differ from Excluded Investment Products (EIPs)
To understand specified investment products, it helps to compare them with Excluded Investment Products (EIPs).
Excluded Investment Products typically include:
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Ordinary shares
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Standard corporate or government bonds
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Basic ETFs
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Simple unit trusts
These products are generally easier for retail investors to understand and do not require the same level of regulatory assessment.
In contrast, specified investment products involve more advanced financial engineering, increasing both opportunity and risk.
Why Specified Investment Products Matter
Specified investment products matter because they provide access to advanced strategies and enhanced return potential.
Potential Benefits:
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Access to leveraged exposure
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Ability to hedge portfolios
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Structured returns tied to market performance
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Access to niche asset classes
However, specified investment products also carry significant risks:
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Capital loss risk
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Liquidity constraints
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Market volatility impact
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Counterparty risk
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Complexity risk
For experienced investors, specified investment products can be strategic tools. For inexperienced investors, they may be unsuitable.
Regulatory Safeguards for Specified Investment Products
Because specified investment products may contain derivatives and complex structures, regulators impose safeguards.
For example, MAS requires:
Customer Account Review (CAR)
Investors must demonstrate relevant qualifications or experience before trading specified investment products.
Customer Knowledge Assessment (CKA)
Financial institutions assess whether clients understand the risks of specified investment products.
Risk Disclosure Statements
Investors must acknowledge the specific risks involved.
These measures aim to ensure retail investors understand specified investment products before investing.
In the UK, while the terminology may differ, the Financial Conduct Authority (FCA) similarly enforces suitability and appropriateness assessments for complex financial instruments.
Risks Associated with Specified Investment Products
Understanding the risks of specified investment products is essential before investing.
Market Risk
Prices of specified investment products can fluctuate rapidly based on underlying asset performance.
Leverage Risk
Leveraged specified investment products amplify both gains and losses.
Liquidity Risk
Some specified investment products may not have active secondary markets.
Structural Risk
Complex payoff formulas may limit upside potential or expose investors to unexpected losses.
Counterparty Risk
Certain specified investment products depend on the issuer’s creditworthiness.
Professional investors typically evaluate these risks carefully before including specified investment products in their portfolios.
Who Should Consider Specified Investment Products?
Specified investment products are generally suitable for:
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Experienced investors
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Individuals with strong financial literacy
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Investors with high risk tolerance
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Portfolio managers using hedging strategies
They are not typically recommended for beginners who lack understanding of derivatives or structured finance.
Before investing in specified investment products, investors should consult licensed financial advisers.
Practical Example of Specified Investment Products in Action
Imagine an equity-linked structured note.
The return depends on the performance of a stock index. If the index rises within a defined range, the investor receives enhanced returns. If the index falls beyond a certain threshold, capital losses may occur.
This structure makes it a classic example of specified investment products because:
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It contains embedded derivatives
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Returns follow a structured formula
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Risk exposure differs from direct share ownership
Such specified investment products require careful evaluation before purchase.
FAQs on Specified Investment Products
What are specified investment products?
Specified investment products are complex financial instruments whose structures, features, and risks are more difficult for retail investors to understand compared to standard investments. These products often contain derivatives or structured formulas that determine returns and losses. Because of this complexity, regulators such as the Monetary Authority of Singapore (MAS) require financial institutions to assess whether investors have sufficient knowledge before allowing them to trade specified investment products.
Why are specified investment products considered complex?
Specified investment products are considered complex because their returns are often linked to derivatives, leverage mechanisms, or structured payoff formulas. Instead of simply rising or falling with a share price, specified investment products may depend on multiple variables such as volatility, time decay, credit events, or index performance ranges. This layered structure increases both analytical difficulty and risk exposure.
What are the key characteristics of specified investment products?
Specified investment products typically share three main characteristics:
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Complexity: They involve intricate structures or embedded derivatives.
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Higher Risk: Their features can expose investors to amplified or less obvious losses.
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Regulatory Oversight: Financial regulators require knowledge checks or suitability assessments before investors can access specified investment products.
These characteristics distinguish specified investment products from simpler retail investment options.
What are examples of specified investment products?
Examples of specified investment products include:
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Exchange Traded Funds (ETFs) with complex or synthetic structures
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Exchange Traded Notes (ETNs)
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Options and Futures
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Structured Warrants and Structured Certificates
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Daily Leverage Certificates (DLCs)
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Contracts for Difference (CFDs)
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Structured Notes (equity-linked or credit-linked)
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Investment-linked insurance policies
These specified investment products often contain derivative components or non-linear return formulas.
Are all ETFs classified as specified investment products?
Not all ETFs are automatically classified as specified investment products. However, certain ETFs—especially those using derivatives, leverage, or synthetic replication strategies—may be treated as specified investment products due to their complexity and risk structure. The classification depends on regulatory definitions in the relevant jurisdiction.
What are unlisted specified investment products?
Unlisted specified investment products are not traded on an exchange and are typically distributed by banks or financial institutions. Examples include structured notes and investment-linked insurance policies. These specified investment products often have customised payout structures and embedded derivatives.
What are listed specified investment products?
Listed specified investment products are traded on exchanges. Examples include:
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Futures contracts
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Options
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Structured warrants
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Exchange Traded Notes (ETNs)
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Daily Leverage Certificates (DLCs)
These specified investment products are accessible via brokerage platforms but may require investors to pass knowledge assessments.
What are Excluded Investment Products (EIPs)?
Excluded Investment Products (EIPs) are simpler financial instruments that are generally easier for retail investors to understand. Examples include:
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Ordinary shares
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Standard corporate or government bonds
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REIT units
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Basic unit trusts
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Certain company warrants
Unlike specified investment products, EIPs typically do not require the same level of investor knowledge assessment.
What is the difference between specified investment products and EIPs?
The main difference lies in complexity and regulatory safeguards. Specified investment products involve derivatives, structured features, or leverage, making them more complex and risk-sensitive. EIPs are straightforward investments without embedded derivative structures. Because of their complexity, specified investment products require stricter regulatory checks.
Why do regulators require knowledge assessments for specified investment products?
Regulators require knowledge assessments because specified investment products may expose retail investors to risks they do not fully understand. Assessments such as the Customer Account Review (CAR) or Customer Knowledge Assessment (CKA) help ensure that investors have sufficient financial literacy and experience before trading specified investment products.
What is a Customer Account Review (CAR)?
A Customer Account Review (CAR) is a regulatory safeguard that evaluates whether an investor has the necessary qualifications, work experience, or investment history to trade specified investment products. If the investor does not meet the criteria, additional steps or restrictions may apply.
What is a Customer Knowledge Assessment (CKA)?
A Customer Knowledge Assessment (CKA) is a process conducted by financial institutions to determine whether a retail investor understands the features and risks of specified investment products. It is designed to protect investors from entering complex transactions without adequate knowledge.
Are specified investment products high risk?
Specified investment products are generally higher risk than standard shares or bonds. Their use of leverage, derivatives, and structured payoffs can magnify both gains and losses. In volatile markets, specified investment products may experience sharp price swings, making them unsuitable for conservative investors.
Are specified investment products suitable for beginners?
Specified investment products are typically not suitable for beginners. They are more appropriate for experienced investors who understand derivatives, leverage, and structured returns. Retail investors without sufficient knowledge may find specified investment products difficult to evaluate properly.
Do specified investment products always contain derivatives?
Most specified investment products contain derivatives or derivative-like structures. These derivatives influence pricing, risk exposure, and return outcomes. However, classification ultimately depends on regulatory definitions in each jurisdiction.
Why do specified investment products matter in modern financial markets?
Specified investment products matter because they allow investors to access advanced strategies such as hedging, leveraged exposure, and structured returns. While they offer potential for enhanced returns, they also introduce additional layers of complexity and regulatory oversight. Understanding specified investment products is essential for investors navigating sophisticated global markets.
Should investors seek professional advice before buying specified investment products?
Yes. Because specified investment products can involve complex risks and derivative exposure, investors should consult licensed financial advisers before investing. Professional advice helps ensure that specified investment products align with individual risk tolerance, financial goals, and regulatory requirements.
Final Thoughts on Specified Investment Products
Specified investment products offer sophisticated opportunities but come with equally sophisticated risks. Their complex structures, embedded derivatives, and leverage features mean they are not appropriate for every investor.
For readers of BusinessWestern.co.uk, understanding specified investment products is essential in today’s evolving global financial landscape. As financial markets become more innovative, investors must prioritise education, due diligence, and regulatory awareness before engaging with specified investment products.
At BusinessWestern.co.uk, we remain committed to providing clear, professional, and research-driven insights to help UK-based readers navigate complex topics like specified investment products with confidence and responsibility.