What Are The Best Fixed Income Investments?

What Are The Best Fixed Income Investments?

updated October 7, 2020
What Are The Best Fixed Income Investments?

A fixed-income investment is an investment from which investors receive predetermined interest or dividend payments on a regular basis until a prescribed maturity date. At maturity, the principal amount invested is returned to the investor.

Bonds issued by companies and governments, such as commercial property bonds or Treasury Bills, are the most common types of fixed income products.

Government and corporate bonds are the most common types of fixed income products, as these represent ways to secure long-term debt. Apart from the steady cash flow, in the event of a company’s bankruptcy, fixed income investors have priority in payment terms and are often paid before common stockholders.

The three main types of Government bonds are:  

–  Municipal Bonds which are issued and backed by a local council or city government authority instead of the central government. The money raised is often used to finance local expenditure on infrastructure (road, rail links, bridges) and community services. The UK Municipal Bond Agency provides councils with lower borrowing costs and will issue bonds backed by joint and several guarantees of the authorities involved;

Treasury Bills (“T-Bills”) are short-term fixed-income securities issued by the central government through the UK Treasury. They do not pay a coupon rate (interest rate) and mature within one year. Investors buy T-Bills at a price less than their face (issued) value and earn a profit according to the difference between acquisition price and the face value at maturity;

Treasury Notes (“T-Notes”) pay a fixed interest rate and usually mature between 5-10 years from inception. Investors receive semi-annual interest payments until maturity, whereupon they are repaid the principal. A Treasury Bond (“T-Bond”) is similar to the T-Note except that it matures after 20 or 30 years.

Then there are corporate bonds which are issued by a company or a financial institution:

– Corporate bonds come in various guises, and the price and interest rate offered largely depends on the company’s financial stability, its creditworthiness and offering. An example is commercial property bonds such as those offered by Nao Group and which are backed by the assets into which the proceeds of the bond are invested;

– Certificate of deposit is a fixed income investment offered by financial institutions with a maturity of less than five years. The interest rate is higher than a typical savings account.

Benefits of fixed income investment bonds

Fixed-income investment bonds are favoured by many investors, as payments due are “fixed” according to the interest rate agreed at the outset of the bond, unlike variable income securities or dividends from stocks or shares which may change year to year.

Upon maturity of the bond, the principal funds invested are returned to the investor who has also received regular cash flow from interest payment throughout the life of the bond.

Commercial property bonds as a fixed income investment

Commercial property investment bonds are a popular type of fixed income offering, providing not only high returns but a great alternative to investing directly into property.

 Some of the key features of commercial property bonds such as that of Nao Group are that:

They are asset-backedThis means that there are underlying property assets to generate the returns guaranteed to investors. If interest payments are not paid as promised, the developer can sell the property in question and return the principal amount invested to the investor. As the bond is a form of debt, it is prioritised over equity holders in the unlikely event the bond issuer goes into bankruptcy;

They offer attractive interest rates: Commercial property bonds offer two types of interest rates: fixed interest rates and variable interest rates. The former means an investor will receive the same amount of interest throughout the bond period, regardless of changes in interest rates nationally. The amount of interest receivable is fixed and won’t decrease if the investment underperforms. On the other hand, a variable interest rate means that the interest received each year depends on the interest rates offered by banks. The Nao Group commercial property bond offers 8.25% interest, guaranteed and is paid quarterly providing a regular income to investors.

The costs and risks are spread between the parties investing in the bond: Collective experience and insights of the bond issuer, together with shared liabilities, help to mitigate risk substantially. Individual investors can benefit from the profitability associated with the property sector, without any downsides of direct property ownership.

Risks of commercial property bonds

As with all investments, there are some risks attached to commercial property bonds. However, the steady and stable interest payments from fixed-income products can help to diversify the overall risk of an investment portfolio.

Furthermore, investing in a property investment bond is akin to buying a property. The investor effectively takes the role of the lender and leaves a developer such as Nao Group to ensure the property investment is soundly structured and that invested capital is secure and well protected.

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Fixed-income investment securities deliver predetermined cash flow for the period of bond issuance and return the principal invested to the investor upon bond maturity.

As a type of fixed-income investment, property investment bonds offer attractive, guaranteed returns as the underlying investments are asset-backed. 

Whether you are investing for the first time or adding to your portfolio, get in touch with us today to find out more about how a fixed-income investment could work for you. 

 

Always seek independent financial advice before making any financial decisions.

 

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