Fixed interest investments offer investors a regular income for a specified term with the expectation that the principal will be repaid at the end of the term (maturity date).
Fixed interest investments are usually issued by corporations, government and semi-government bodies and financial institutions such as banks to raise funds.
Examples of fixed interest investments include:
- corporate bonds
- government and semi-government bonds
- capital notes
- debentures and
- income securities.
Benefits of investing in fixed interest
Fixed interest investments should form part of a diversified investment portfolio and can offer the following benefits:
- regular income returns at a set interest rate, which can be fixed for a specified term, providing greater certainty than shareholder dividends
- repayment of your initial investment on maturity
- if interest rates fall, you generally continue earning the higher initial rate of interest until maturity.
Risks of investing in fixed interest
While fixed interest investments are generally secure, like all investments, there are risks involved. For example, like shares, fixed interest investments are not guaranteed. If the issuing company fails, investors may lose all or part of their initial investment.
It’s important to remember however that some fixed interest investments, such as corporate bonds, generally rate higher than shares in the issuing company’s credit structure and therefore where an issuing company is wound up, have priority in any return of capital to investors.
You can gain access to corporate bonds through funds such as the Australian Masters Corporate Bond Funds.