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Fixed income instruments are loans made by the lender (investor) to the borrower (issuer) in exchange for regular income payments and the return of capital at maturity. While fixed income instruments vary, they generally have a fixed term and a schedule of interest payments which differs to equities where dividends are discretionary.
Fixed income can play a valuable role in investment portfolios, with a wide range of yields to suit your risk profile and investment objectives, capital stability and the repayment of principal at maturity (assuming the issuer does not default or become insolvent) being among the key benefits.
There are two types of fixed income securities:
The majority of investment returns for fixed income come from regular (coupon) payments.
Listed fixed income are exchange traded which can give you a convenient way to buy or sell investments.
Fixed income investments are typically less volatile and rank high on a company's capital structure.
For unlisted fixed income investments, there may not be a buyer when you wish to sell.
If interest rates rise, the price of bonds in the market fall.
In the event of an issuer default, your coupon payment and return of principal may be impacted.