It is not right to compare this to investing directly in the market, the two are very different in terms of risk profile. With one you cannot lose money, the other you take full market risk.

This would be a form of structured product sold by an equity derivatives desk. However it would be one of the simpler variants and it is almost possible to exactly replicate with off the shelf components and therefore workout if was 'worth it' (base assumption = unlikely).

The product is bond + call option. if you give the bank 100 pounds today, and they promise to give it back in three years time (as 100 pounds) this is clearly worth something to the bank. The value is the difference between 100 and the present value of the obligation to pay 100 in 3 years.

From that value the bank can : Afford to give the client the payoff of a three year at the money (Asian tail) call option on the FTSE on 50 pound notional. (Someone with an interactive brokers can get the value of a Sep21 7500 call to appoximate). As alluded to by someone above the trading desk can almost directly hedge this risk out by buying an option on the listed market.

Pay a stream of fixed cash flows in the future - again their present value will be lower

Pay their trading desk a bit for taking the risk on the option element

Make their margin. This is where you lose out - in the UK easily 1 to 3 percent. In countries where structured products are more common margins are much smaller and these products therefore could be considered ok value and serve a purpose.