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Tutorial: Index/Participation Certificates

What are index/participation certificates?

With an index/participation certificate, you can directly benefit from the development of the underlying instrument. It allows you to diversify the risk, because you do not invest in one specific security, but in an index – such as for example the ATX. This way your investment is not influenced by the fluctuations in one security, but by the combined development of all the securities contained in the index.

The losses of one group of shares may be offset by the gains in another group in the index. Your overall risk is therefore lower if you hold an index/participation certificate than if you hold specific shares. Index/participation certificates may be issued on performance indices as well as on price indices.

How do index/participation certificates work?

Index/participation certificates are issued at a certain exchange ratio relative to the underlying instrument. Most often they are traded at 1:100 or 1:10 to the index. This means that if for example the ATX is at 3,700 points, one index/participation certificate with an exchange ratio of 1:100 to the ATX costs EUR 37. By the way, index/participation certificates are a cost-efficient form of investment in that they come with no load or management fee.

Your benefits

If you are convinced of future price rises of an index, index/participation certificates are a price-efficient way of investing in the underlying instrument. The certificate reflects the price movements of the underlying index 1:1. Issuers basically charge no load or management fee on index/participation certificates.

Your advantages

  • Investors benefit directly from the performance of the underlying. This means that in the case of a rising market, the potential gains are not capped.
  • Index/participation certificates are a cost-efficient form of investment, compared to a direct investment in the constituents of an index.
  • They are an easy way for you to diversify the risk.

Risks you should be aware of

  • Falling markets translate into losses for index/participation certificates. There is no capital guarantee and a total loss of invested capital is possible.
  • An index/participation certificate can never outperform the underlying.
  • Investors bear the risk of the issuer (Erste Group Bank AG).
  • Index/participation 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 index/participation certificates react to…

… rising underlying prices?
Rising underlying prices mean proportionately rising index/participation certificates. If the ATX increases for example from 4,000 to 4,400 points, i.e. by 10%, the value of the index/participation certificate will also rise by 10% from EUR 40 to 44 (in the case of an exchange ratio of 1:100).

… stable underlying prices?
If the index does not move, the index/participation certificate will not move either.

… falling underlying prices?
Falling underlying prices mean proportionately falling index/participation certificates. If the ATX declines for example from 4,000 to 3,600 points, i.e. by 10%, the value of the index/participation certificate will also decline by 10% from EUR 40 to 36.


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