What do you do in fixed-income?

What is fixed income and variable income

For the most conservative savers and investors, fixed income products have always been one of the most attractive options, since they are instruments with a low associated risk and a profitability that, although reduced in comparison to other types of investments, is known beforehand.

In the market there are different fixed income products that can be classified according to who issues them, the term of the investment and the yield they offer. Let’s take a look at all these classifications.

One of the most common mistakes is to think that investing in fixed income is risk-free. It is important to stress that any investment product contains risk to a greater or lesser extent. These risks should always be detailed in the product’s prospectus. There are basically three types of risk:

The optimal way to acquire fixed income exposure is through fixed income mutual funds, where the manager is in charge of buying the best issues, diversifying and minimizing issuer, interest rate and liquidity risks.

What is the role of fixed income?

Fixed income securities are negotiable securities with the purpose of raising funds directly from the public, for which the issuer undertakes to pay interest and repay the principal at predetermined times. Fixed income securities may be issued by public companies and agencies or by private companies.

What is my fixed income?

Fixed income is understood as debt instruments that give you an interest rate for a determined and known period, such as time deposits, or those that pay you coupons in known periods and their capital at the end, such as bonds. This is why it is called fixed income.

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Why is it called fixed income?

Fixed-rate instruments refer to securities representing a debt (debt securities) with a periodic payment at a fixed rate on the face value of an investment in which the issuers are liable for the payment of previously established yields.

Examples of fixed income instruments

We understand fixed income as debt instruments that give you an interest rate for a determined and known period, such as time deposits, or those that pay you coupons in known periods and their capital at the end, such as bonds. This is why it is called fixed income. Thus, we would expect the same to be true of the type of mutual funds that invest, for example, in term deposits or bonds.

The answer is because the debt instruments in which these mutual funds invest are exposed to market risk, which can affect the performance of the fixed income fund in one way or another.

The profitability or gain obtained in the past does not guarantee that it will be repeated in the future. The values of fund shares are variable. This article is for educational purposes and is not a recommendation. Investments involve risks, including possible loss of principal. Asset allocation and diversification does not guarantee a profit or protect against loss.

What are the fixed income products?

Explicit yield fixed income products are those that make periodic payments to the investor in the form of interest (coupons). The periodicity of these payments varies according to the stipulations of the issue, with a semiannual or annual coupon being the most common.

What is the difference between fixed income and equities?

Broadly speaking, we can say that fixed income guarantees a return with a minimum risk, but more limited, while variable income is riskier but can offer much higher returns, i.e.: the higher the risk, the higher the returns that can be obtained.

What are fixed income securities?

These are securities payable to order, freely negotiable in the secondary market. The term is determined in accordance with the regulation needs of the money market and treasury budgetary requirements and fluctuates between 1 and 10 years.

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Fixed income what it is

Fixed income is a type of investment made up of all financial assets in which the issuer is obliged to make payments in a previously established amount and period of time.

In other words, in fixed income, the issuer guarantees the return of the invested capital and a certain profitability. In other words, if we acquire a fixed income instrument, we know the interest or profitability that we will be paid from the moment we purchase the instrument.

It is called “fixed” precisely because we know from the beginning the amount we are going to be paid at any given time. Generally, they pay a fixed coupon every six months. Therefore, the yield is fixed from the issue of the security until maturity.

Fixed income is the opposite type of investment to variable income. An example of variable income is equities. In variable income we do not know what interest or dividend we are going to be paid during the period in which we buy.

Since we know what the issuer is going to pay us at any given time, we can calculate the theoretical price of the securities, adding up the future cash flows we are going to receive, using the net present value (NPV) method. We can also use the internal rate of return (IRR) method to calculate the return we will receive if we buy the fixed income security in the market.

What are the fixed and variable income securities?

Differences between a fixed income and a variable income

The majority of transactions in the financial markets involve these two products. They are different types of financial instruments, fixed income are participations (bonds, public debt or corporate promissory notes) while variable income are shares.

What is Bancolombia term fixed income?

It has an active management style, as it looks for continuous opportunities for appreciation in the markets in which it invests. It generates a monthly statement detailing the investment made and its returns, which you can consult in the Virtual Branch or receive at the address you have designated.

What is fixed income in GBM?

Fixed income instruments are financial assets in which the issuer is obligated to make payments of an amount and in a previously established period of time. It is called “fixed” because the amount and the period in which the issuer must pay the investor is known from the beginning.

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Fixed income products

Fixed income investment instruments are debt instruments issued by governments and corporations to a broad market. They are generally issued by governments and financially strong corporate entities in defined amounts that carry a maturity date.

In exchange for lending their capital, investors receive interest from time to time. This interest can be paid implicitly with zero-coupon assets, or explicitly through coupons that are issued periodically in the case of bonds or debentures. The determination of the rate of return of this type of instruments is required to be calculated by means of mathematical and financial formulas that refer to the purchase of such instruments through a discount offered by the market.

Once the purchase of such instruments at a discount has been made, the instrument may be offered at a higher price. For the issuer of the securities it represents a cheaper source of financing than through banks, since intermediation is avoided and the risk is spread.