Fixed income investments – Bonds

Fixed income investments, particularly bonds, are a popular asset class for investors seeking regular income and lower risk compared to equities.
A bond is a debt security issued by a government, municipality, or corporation to raise capital. In return for the investment, the bond issuer agrees to pay interest (called the coupon) periodically and return the principal (the face value) at the bond’s maturity.

Types of Bonds:

  • Government Bonds
  • Municipal Bonds (Munis)
  • Corporate Bonds
  • High-Yield Bonds (Junk Bonds)
  • Convertible Bonds

Why Invest in Bonds?

  • Steady Income: Bonds provide a predictable stream of income through interest payments.
  • Diversification: Bonds can help balance the risk of other investments, such as stocks, because their prices often move differently.
  • Capital Preservation: For conservative investors, bonds can offer a safer way to preserve capital, especially government bonds.
  • Lower Volatility: Bonds tend to be less volatile than stocks, making them attractive to risk-averse investors.

Risk Factors in Bonds:

  • Interest Rate Risk
  • Credit Risk 
  • Inflation Risk
  • Liquidity Risk