Fixed Coupon Note (FCN)
intermediateEarn a fixed coupon in exchange for bearing downside risk below a barrier level. One of the most common structured products in private banking.
Parameters
Payoff at Expiry
Scenario Analysis
How FCNs Work
What is it?
A Fixed Coupon Note (FCN) pays you a guaranteed coupon regardless of what the underlying does. In exchange, you bear the downside risk of the underlying below a barrier level. If the barrier is breached at expiry, you receive the underlying shares (or cash equivalent) instead of your principal.
The payoff mechanics
You receive your full denomination back plus the coupon. This is the "best case" — the barrier was never breached.
You bear the loss from the strike price down. You still receive the coupon, but your principal is reduced based on how far the underlying has fallen.
Who buys this and why?
FCNs are popular with investors who have a mildly bullish or neutral view on the underlying and want to enhance yield. The coupon is typically much higher than a deposit rate, making it attractive for income-seeking investors who are willing to accept conditional capital risk.
Key risks
- Barrier breach risk — If the underlying drops sharply, you can lose significantly more than the coupon earned.
- Opportunity cost — If the underlying rallies, you only get the fixed coupon. You don't participate in the upside.
- Issuer credit risk — The note is only as good as the issuer's ability to pay.
- Liquidity risk — Structured products are typically less liquid than plain stocks or bonds.
Comparison to direct investment
| Factor | FCN | Direct Stock |
|---|---|---|
| Upside | Fixed coupon only | Unlimited |
| Downside | Protected above barrier | Full exposure |
| Income | High coupon (5-25% p.a.) | Dividend only (1-5% p.a.) |
| Liquidity | Lower | Higher |