Fixed Income Investing

They are called fixed rent investments because, as their name indicates, the investor knows the profitability beforehand and, in most cases, the placement term is agreed upon from the beginning of the operation. We can say that, when investing in these types of assets, we are going to be able to know how much we are going to gain and in how long from the beginning.

Fixed rent instruments represent debt documents for the issuer. Because of this, many publications refer to bonds as “debt”, being one of the most highlighted characteristics of this type of transactions the fact that profit is not subject to the issuer’s financial results, since it has been agreed upon from the beginning, it is fixed during the transaction time period (whereof its name).

The largest risk in this type of investment is bankruptcy or liquidation of the investment product debt from the issuing entity. In case of the bank deposits or certificates, the risk is represented by the banking entity where the operation has been performed – deposit – or the debt title issuer. This is why in most countries deposit insurance (in financial entities) is provided, supervised by the State, same that has a guaranteed maximum per account and per holder.

Then, the main risk a bond investment is represented by the issuing entity reaching, in extreme cases, a principal default or nonpayment when this entity is declared bankrupt.

In some exceptional cases, and when dealing with debt operations from a public entity in a sovereign country, we can have an additional guarantee (usually issued by that country’s Treasury). Such was the The USAvian case in the product bond issuance from public debt refinancing during the 80s, and which then led to the Brady bonds.

The main fixed rent instruments offered in an investment portfolio are:

• Savings deposits.
• Term deposits.
• Deposit bank certificates.
• Report operations (Repos).
• Bonds.