A Principal Protected Note (PPN) is a security issued by a financial institution that guarantees payment of the invested principal (if held to maturity), and offers to pay an investment return that is linked through formulas to an underlying investment product. (The underlying investment product can be as simple as an established stock market index or a more complex investment such as hedge funds.)
PPNs are often sold to investors as an alternative to low yielding fix income investments, such as Guarantee Investment Certificates (GICs) and bonds. They are sold as Buy and Hold investments that provide investors with an opportunity to share in the upside potential of the underlying investment without the risk of capital loss. The investment’s return is only achieved at maturity. More recently some PPNs offer an annual Cash-Flow that is usually pulled from the investment’s equity.