Fixed Income Instruments. Fixed-income instruments entitle their holder to a right of claim against the issuer of a loan. The return is normally paid in the form of interest. There are various types of fixed-income instruments depending on the issuer that has issued the instrument, the security provided for the loan by the issuer, the term until the maturity date and the type of payment of interest. The interest (coupon) is normally paid annually. Another form of interest payment is to sell financial instruments at a discount (discount paper). Upon sale, the price of the instrument is calculated by discounting the loan amount, including calculated interest, to current value. The current value or the price is lower than the amount received upon maturity (nominal amount). Banks’ certificates of deposit and treasury bills are examples of discount papers, as well as bonds with a zero coupon structure. A third form of fixed-income bond is the government premium bond, in which the interest on the bond is drawn among the holders of premium bonds. There are also fixed-income instruments and other forms of saving in which the interest is hedged against inflation and the investment thereby yields fixed real interest. The risk associated with fixed-income instruments relates to any changes in exchange rates (exchange rate risk) during the terms of the instruments as market interest rates change. Another risk factor is that the issuer may not be able to repay the loan (credit risk). Thus loans for the repayment of which full security has been provided are typically less risky than unsecured loans. In general, however, it can be stated that the risk of loss associated with fixed-income instruments is lower than with shares. A fixed-income instrument issued by an issuer with a high credit rating may therefore be a good alternative for investors who prefer to minimise the risk that the capital saved decreases in value, and it may be recommended for short-term savings. Similarly, for long-term savings in which the capital is not to be jeopardised, fixed-income investments are highly common, when accruing a pension reserve, for example. The disadvantage of a fixed- income investment is that, as a rule, it yields a low increase in value. Examples of fixed-income investments are savings accounts, private bonds and fixed-income funds. Next page
Fixed Income Instruments. With respect to fixed income products execution strategy is undertaken on a trade-by-trade basis, and will depend on the objectives of the client. The execution factors that will be taken into consideration are set out above; liquidity and price, realized performance, speed of access and costs.
Fixed Income Instruments. Generally perceived to have less price fluctuations than stocks and therefore offer lower market risk. Tend to provide lower long-term returns and have higher inflation risks over time Money market instruments/Cash Among the most stable of all asset classes in terms of returns, money market instruments carry low market risk.
Fixed Income Instruments. Advice on Bank and Company Fixed Deposits, Fixed Maturity Plans, Debentures and Bonds, Provident Fund and Post Office Saving Schemes etc.
