Fixed interest assets
Fixed interest assets (also called “fixed income”) include corporate bonds, government bonds, semi-government bodies and debentures. They work like a loan from you to the bond or debenture issuer, with a set rate of interest due to be paid to you at set intervals, and often a specific payback date.
Slightly higher risk and returns than cash
Fixed interest investments generally involve lower risk than shares and property, but sit higher on the risk spectrum than cash.
As a consequence, the returns from fixed interest are typically slightly higher than for cash.
Benefits of investing in fixed interest
Fixed interest investments offer benefits such as regularincome returns at a set interest rate, over a fixed term. This can provide greater certainty than other sources of income like, say, dividends from shares. You will also be paid your initial investmenton maturity; even if interest rates fall, you are locked into a rate of interestuntil maturity.
A role to play in diversification
While fixed interest investments can be safer, like all investments there are risks. For example, corporate bond investors may lose all or part of their initial investment if the company issuing the security fails.
Some fixed interest investments require large sums of upfront capital, potentially putting them beyond the reach of individual investors. An alternative can be investing in a managed investment that has fixed interest investments in its underlying assets.
These managed investments offer professional investment management and can provide a good spread of underlying investments, giving you broad exposure across the fixed interest market.
Next:Shares
How to invest in shares
Shares offer an opportunity to own a stake in a company, and with this comes the potential to earn dividend income and possible capital gains over the medium to long term.
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