The Securities Exchange Commission and the Financial Industry Regulatory Authority (FINRA) are warning investors to make sure they truly understand the risks associated with investing in structured notes with principal protection before they get burned.

In an advisory issued late last week, the regulatory agencies caution that the while these investments have "reassuring names," they are not risk free and investors need to take the time to educate themselves about the finer details of these complex financial products.

In the joint advisory titled "Structured Notes With Principal Protection: Note the Terms of Your Investment," FINRA and the SEC said that interest from retail investors for these structured products has increased in recent years but many could be caught unawares by their complicated pay-out structures.

Structured notes with principal protection typically combine a zero-coupon bond -- which pays no interest until the bond matures-- with an option or other derivative product whose payoff is linked to an underlying asset, index or benchmark. The underlying asset, index or benchmark can vary widely, from commonly cited market benchmarks to currencies, commodities and spreads between interest rates, the advisory said.

The investor is entitled to participate in a return that is linked to a specified change in the value of the underlying asset. However, investors should know that these notes might be structured in a way such that their upside exposure to the underlying asset, index or benchmark is limited or capped.

Regulatory officials said investors who hold these notes until maturity will typically get back at least some of their investment, even if the underlying asset, index or benchmark declines. But protection levels vary, with some of these products guaranteeing as little as 10 percent -- and any guarantee is only as good as the financial strength of the company that makes that promise.

"Structured notes with principal protection contain risks that may surprise many investors and can have payout structures that are difficult to understand," Lori J. Schock, Director of the SEC's Office of Investor Education and Advocacy, said in the alert. "This alert is a 'must read' for investors considering these products, especially those with the mistaken belief that these investments offer complete downside protection."

FINRA and the SEC wants investors considering these notes to know that they could tie up their principal for upwards of a decade with the possibility of no profit on their initial investment.

"The current low interest rate environment might make the potentially higher yields offered by structured notes with principal protection enticing to investors," John Gannon, FINRA's Senior Vice President for Investor Education John Gannon, said in a statement. "But retail investors should realize that chasing a higher yield by investing in these products could mean winding up with an expensive, risky, complex and illiquid investment."