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What is Fixed Income? Why Invest in It?

29 Nov 2022

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Key Takeaways:

  • Fixed income typically carries less risk, making it a wise choice for capital appreciation
  • Dependable and timely payments are why fixed income is such a desirable asset
  • Most fixed-income securities are rated by credit rating agencies

When it comes to investing, there are many options to choose from. You can invest in more common financial instruments, such as stocks and mutual funds, or more complex financial instruments such as private equity and private funds depending on your investment goals. One option that is almost always in a savvy investor’s radar is fixed income security. 

Favoured for its ability to generate a fixed rate of interest, fixed income security can be a wise choice for investors who have a moderate to low-risk appetite and would like to preserve their capital in uncertain times.  

As to why this is, there are many reasons. However, before we get to that, let us first understand what a fixed income security is. 

A fixed-income security is simply an investment that pays a set amount of money at regular intervals, known as interest or coupon.  

The investor of this security receives a coupon payment (interest) until the security reaches maturity, at which point the investor will receive his or her final principal amount.  

Examples of fixed income products include bonds, investment notes, and private debt securities.  

Sounds simple?  

As a matter of fact, its simplicity is exactly one of the reasons why many investors incorporate it into their existing portfolios, along with other investments.  

Here are Other Advantages When Investing in Fixed Income Security 

Diversification from Stock Market Risk 

Fixed income assets are generally less sensitive to macroeconomic risks, such as inflation, recession, or geopolitical events. As such, it is broadly understood that they carry lower risk compared to stocks. By allocating a portion of your portfolio to fixed income investments, you can protect your portfolio against volatility in the stock markets. 

Rated by Credit Rating Agencies 

Most fixed-income securities are rated by credit rating agencies allowing you to choose from financially stable issuers. In KLDX’s case, they are rated by an SC-licensed credit rating agency that provides ratings on issuers of commercial papers, bonds, long-/short-term debts, and preferred shares. 

Predictable Income 

When you invest in fixed income securities, you will know exactly what your returns are and when you will be getting them. This helps to provide a regular, predictable stream of income. 

To find out more on our fixed income security listings, visit our project listings page here. The coupon (interest), redemption (full repayment of the principal amount), and rating will all be clearly stated on the white paper of each business issuing these securities.  

Key Considerations for Fixed Income Investors

Interest Rate Risk

Fixed-income securities have interest rate risk meaning the rate paid by the security could be lower than interest rates in the overall market. For example, let us just say you have invested in a fixed income that pays 7% per year. Over the years though, the rates have increased to 10%. This means your fixed income price and returns are now lower than what is currently being offered in the market.  

Barriers to Entry 

The minimum to invest in a fixed income security right now in Malaysia starts at RM200k and above. This naturally prices out most investors from tapping into this broadly accepted capital-preservation security.

KLDX changes all this. By leveraging blockchain and smart contract technology, we make fixed income investing accessible to all investor types for a low minimum investment. 

Start investing now here 


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