Fixed Income Investments
Investments that promise to pay a fixed amount in interest or dividends until their maturity are termed fixed income investments.
Alongside these dividends that are paid on a schedule, the principal amount is also paid back to the investor on maturity. These differ from equities in that equities aren’t obligated to pay investors anything back, whereas, fixed income investments are required to make this payment. But unlike shares or equities, where you own a part of the company, these investments mean that you are lending to the entity.
- Government bonds
- Corporate bonds
- Structured notes are some such investments.
There are a few reasons why fixed income investments may be right for you below. We will always recommend you speak with a financial adviser to help navigate you through investing.
Contents
1. Risk Appetite
Due to the consistency of returns, investors with low-risk profiles may be particularly drawn to these investments. Government bonds are considered some of the safest investment options out there. Investing in assets apart from equities also helps you diversify your portfolio and reduce potential risk.
2. Additional Income
Receiving timely interest on your investment is a form of passive income. Although the returns may not be sizeable in the long term or may be unable to keep up with inflation, fixed income investments supplement your portfolio with additional income for short-term plans. For those planning to retire soon, this can help cushion your pension.
3. Capital Preservation
As fixed income investments are essentially loans extended to an entity, their goal is to pay it back. As a result, the totality of your investment is protected. Similar to being an additional source of income, inflation may play a tricky role by eroding the value of your investment.
How can you invest in a fixed income investment?
While it is possible for retail investors to invest in fixed income assets, they come with certain conditions, including minimum investment, lack of liquidity, and so on.
Mutual funds and exchange-traded funds (ETFs) are common means to access fixed income investments. You can opt for fixed income mutual funds that are tailored to invest in bonds. Similarly, ETFs broaden the scope of assets you can invest in. Nowadays, many brokers are offering the option to invest in these assets directly.
What is a structured note?
Structured notes are tailored plans that you can opt for where your funds are pooled together and invested in specific assets or markets. These usually range anywhere from 3 to 6 years. The lower-end rate of returns ranges from 3.5% to 5% per annum. Notes aimed at growth can yield as much as 10%.
Structured notes define the return you will receive, which is simultaneously dependent on the market. Nevertheless, they are able to uphold 80%-90% of their value even if the market has a significant drop. The fixed return or cash coupon is paid out on a quarterly basis. Returns are not generated as a result of the issuer’s business outcomes but the market performance of the underlying asset. Usually, structured notes don’t come with a principal guarantee.
These notes offer inherently diverse products within the strategy and are ideal for those with minimal risk appetites. Low entry cost and reduced impact of market fluctuations on returns make structured notes an attractive option.
For more information on structured notes check out this explainer video by Managing Partner, Chris Ball:
Bonds as Fixed Income Investments
Probably the most popular fixed income investment, bonds are essentially loans to companies or the government. Unlike equities, bonds offer the benefit of legal protection where in case of insolvency, bondholders are repaid before shareholders. However, because bonds are generally considered safe options with fixed interest, the returns tend to be lower.
Bonds are primarily categorised as corporate and government. Corporate bonds are loans that you give to a company for either a fixed or variable interest that is periodically paid until maturity. Government bonds work similarly but usually have a lower interest because they are regarded as safer than corporate ones.
Fixed Income Investment Calculator
Hoxton Capital Management has exclusive access to an array of fixed-income investment products which we are able to make available to our clients.
Use our simple tool to calculate the additional income you could be generating from your surplus capital today, and then reach out to speak to one of our investment advisers to find out more.
What to do?
Speak with an adviser about what options suit you and your investment needs best.
While curating your portfolio, you may consider investing in fixed income assets. Our financial advisers can help plan and execute investment options that work for you. Get started on your investment journey with Hoxton Capital Management today.