What is
What is fixed income?
Bond funds explained – how bond funds work: Fixed income or fixed interest or bonds are investments where you lend money and receive an IOU.
Bond funds explained – how bond funds work:
Fixed income or fixed interest or bonds are investments where you lend money and receive an IOU. You lend money and you receive interest and your money back sometime in the future.
Bonds are popular with those who like the peace of mind that comes from knowing that you will receive regular interest for a fixed period.
Most income investors like bonds as it gives you a predictable income with lower volatility than equities.
By lending money to a company or a government you fix the interest (coupon) that you will receive for the life of the IOU.
The quality of each company or government is rated and therefore the lower quality companies will need to tempt the investor with a higher interest level.
For example, for lending to a supermarket you would receive a higher yield (interest) than the Bank of England.
Also, the longer the IOU before the investment is repaid, the higher the interest level. Recently Alphabet (Google) issued a 100-year bond to fund investment in AI. To tempt investors, they had to pay 6.125% in interest.
The fixed income market is larger than the equity market. Corporates issue a wide range of high yielding bonds with varying maturity lengths and with different levels of security. Active fund managers search for mispriced bond issues and tactically buy and sell the bonds.
Information, not advice. This guide is general information to help you understand your options. It is not personal advice and not a recommendation to buy, sell or hold any investment. If you are unsure what is right for your circumstances, consider taking regulated financial advice. The value of investments and any income received from them can fall as well as rise, and investors may receive back less than they originally invested. Past performance is not a guide to future returns.