With interest rates and market conditions constantly changing, investors are increasingly looking for ways to generate higher income from their portfolios without taking on direct equity exposure.

A Fixed Coupon Note (FCN) is one such investment solution. It offers an attractive fixed coupon by allowing investors to exchange some of the traditional downside protection of a fixed-income investment for exposure to the performance of an underlying stock.

In simple terms, an FCN can provide attractive regular income, but investors must be comfortable with the possibility of receiving shares instead of their full capital if the underlying stock falls below certain levels.

This article explains how an FCN works, including the key terms such as coupon, knock-out, knock-in and strike price, and walks through the different possible outcomes for investors.