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Tutorial: Bonus certificates

What are bonus certificates?

Bonus certificates combine three advantages in one product. The investor benefits from rising prices of the underlying instrument, receives a sizeable bonus payment, and, in the case of falling prices, is protected up to (or in fact, down to) the safety barrier. In case of an unexpected slump, the bonus payment is dropped, and the price of the underlying instrument is credited at the end of the term.

How do bonus certificates work?

The bonus level which determines the bonus payment is set above the current price of the underlying at the issue of the certificate. The barrier is set below the initial value. If the specific certificate comes with a cap as well, it is set at or above the bonus level.

The redemption at maturity depends on the development of the underlying. The following two cases can occur:
If the underlying does not fall to or below the barrier, the investor receives at least the bonus level payment. If the price of the underlying is higher than the bonus level at the end of the term, the investor receives the higher payment out of the two. The cap, if any, determines the maximum payout.
If the underlying does fall to or below the barrier at least once during the term of the certificate, there will be no bonus payment. The investor receives the performance of the underlying at maturity (limited by the cap, if any). Depending on whether the price of the underlying is below or above the issue price, the investor incurs a loss or makes a profit.

Your benefits

With bonus certificates investors have the chance to earn an interesting return even if the price of the underlying has not moved or has in fact fallen, as long as the price of the underlying has not fallen to or below the barrier.

Your advantages

  • Investors receive a bonus payment at the end of the term even in the case of stable or falling prices as long as the price of the underlying has not fallen to or below the barrier (“sideways yield”).
  • The barrier offers partial protection against falling prices (risk buffer).

Risks you should be aware of

  • The return may be capped.
  • If the price of the underlying falls to or below the barrier, losses are possible. There is no capital guarantee and a total loss of invested capital is possible.
  • Investors bear the risk of the issuer (Erste Group Bank AG).
  • Bonus certificates are not covered by any deposit guarantee scheme. Investors are exposed to the risk that Erste Group Bank AG may not be able to meet its obligations arising from the certificate in the event of insolvency or over-indebtedness or from an official order (bail-in regime). A total loss of invested capital is possible.

How do bonus certificates react to…

… rising underlying prices?
When the underlying price rises, investors receive the bonus payment at the end of the term. If the certificate is not capped, investors participate directly in the performance of the underlying once the price of the underlying is above the bonus level.

… stable underlying prices?
When the underlying price is stable, investors receive the bonus payment (sideways yield) at the end of the term.

… falling underlying prices?
When the underlying price falls, investors receive the bonus payment at the end of the term as long as the price of the underlying has not fallen to or below the barrier. In the latter case, there is no bonus payment and the certificate follows the performance of the underlying (i.e. losses are possible).

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