Tuesday, September 28, 2021

Investing in Fixed Income Securities

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Fixed income securities are often referred to as debt instruments and are mostly issued by the government or large corporations. They are investment that yield a fixed rate of return periodically.

For example, assume the government is to embark on a long term project and it needs to finance it. The government could lend money from the public by issuing these debt instruments to them (the investors); investors will provide government with the finance needed while the government provide the investor with a regular return and pay back the principal at the set date.


Fixed Income are therefore, debt instrument that provides a return in form of a fixed or regular interest referred to as coupon payment and the repayment of the principal at maturity date.


There are different types of fixed income securities but the most common types are bonds, treasury bills, and the Open Market Operation Bills (OMO Bills). While investing in fixed income securities, it is advisable to meet with an asset manager or an analyst to discuss because of the technicalities of how the market operates.


Fixed income assets are first issued in a primary market and then exchanged in a secondary market. The primary markets are where the issuer sells the bonds or instrument first and it is done through an auction which involves bidding. It could also be done through a private placement which involves buying directly from the issuer. Secondary markets are markets in which existing bonds are subsequently traded among investors.


There are some factors you should consider before investing in fixed income securities which include the liquidity prospect of the bond, the price and yield of the bond, the credit rating of the bond, the riskiness of the investment and many others but emphasis is still made on taking an advice from an asset manager before taking the step to invest in fixed income.


If you are still doubting as regard investing in fixed income securities; Here are the reasons why you should invest-


It is a secured investment
Fixed income securities are issued by government, some are issued by some corporations/companies but they are all guaranteed by the federal government. It is no scam and if you are looking for a secured investment, fixed income is your sure bet


Regular Returns
Investment in bonds or other debt instruments provides you with consistent coupon payment or returns unlike stocks where there is no guaranteed return on investment


Taxation benefits
One important benefit of investing in fixed income is that the interest earned on them are often tax free.


Opportunity to diversify
Diversification is the new normal while investing. Investment in fixed income securities provides you with the opportunity to diversify into various form of investment to build your portfolio.

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