THOUGHT OF THE WEEK
A guide to Fixed Income Investing (Part 1)
As discussed previously, fixed income investments are debt securities that pay investors interests at a fixed rate for a specific period of time. They include certificates of deposits by banks, bonds etc. Most often these types of securities are referred to as “bonds”. Bonds are issued in most countries by either the government or corporate bodies. Bonds are therefore traded on exchanges, making the bond market one of the largest
financial markets in the world.
Bonds are used by governments and corporate bodies to finance their activities. When you buy a bond, you are financing a company and in exchange of the financing, you receive a specific rate which is known as the “coupon rate”. Unlike other investments, the interest on bonds are paid annually or semiannually until you receive your principal amount on the maturity date of the bond. Bonds play a strategic role in the investment portfolio by helping to preserve the principal whiles generating income and stabilises the overall returns of the investment.
The coupon rate of a bond is the yield that is being offered on the date of the bond issuance. This is fixed for the entire duration of the bond. As interest rates fluctuate over the duration of the bond, the “yield to maturity” of the bond changes and this affects the value or price of the bond. Bond prices rise
as interest rates fall and bond prices fall as interest rates rise. Investors buy bonds because of their relatively low risk. However there are few risks that are associated with bonds. To be continued…
This weekly report is the copyright of NIMED Capital Ltd. (NIMED), an investment banking company licensed and regulated by the Securities and Exchange Commission (S.E.C.) of Ghana as Investment Advisers as well as the National Pensions Regulatory Authority (N.P.R.A.) as an approved Pension Fund Manager. Information and opinions herein have been compiled or arrived at based on information obtained from sources considered reliable; we therefore do not hold ourselves responsible for its completeness or accuracy. All statements of opinion, projections, forecasts, or those relating to expectations regarding future events or performance of investments represent NIMED’s own assessment and interpretation of information currently available to NIMED which are subject to change.