What is fixed-income in banking?

What is fixed-income in banking?

Fixed income instruments

The answers to each of these questions will help you decide between different financial investments, either by their risk or by the time frame in which you will receive the remuneration. Click here to read more about mutual funds.

It is one of the types of investments with which you expect to get a higher return than you would get in fixed income, but with a higher investment risk. This risk will depend on the economic situation of the company in which you invest, the behavior of the financial markets or the variations of the currency.

Fixed income which is

Residual short-term obligations, including CBDP and time deposits, amounted to ThCh$79,844 thousand. Considering only fixed-income instruments, the balance of these obligations was mm$15,021 (7.1% of the total stock), mainly from bank and government bonds.

From the investors’ perspective, the higher stock of debt securities was reflected in an increase in the holdings of foreign investors, commercial banks and pension funds. On the other hand, the Central Bank, mutual and investment funds decreased their holdings.

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A priori, it is a type of investment that offers security, which serves to avoid the uncertainty inherent in market volatility. In fact, even for investors who want to take on more risk, it is a way to reduce portfolio volatility.

Fixed income is an investment category in which the issuer is obligated to make a series of periodic payments in a pre-determined amount and over a pre-determined period of time. Generally, the installments are received through a periodic coupon, in a percentage of the invested capital, called interest rate.

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This is precisely why it is called fixed income, because the creditor knows in advance the amount to be paid at any given time. In essence, they are debt instruments used by governments, financial institutions, companies and, in general, any agent requiring financing.

Fixed-income securities are also listed on the financial markets, as is the case with other types of assets such as equities. To do so, they follow a process of issuance and negotiation in the markets.

Fixed income securities

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 return that, although reduced compared to other types of investments, is known in advance.

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.

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