Fixed income

Fixed income is a form of financing used by governments and corporates to raise money. They do this by issuing debt that is then purchased by investors.

Primarily, this form of financing is used because it tends to be the cheapest option. A corporate that needs money can choose between increasing its capital (by bringing in new partners) or taking out a loan from a bank, but both options have drawbacks.

By contrast, issuing debt in financial markets allows corporates to obtain funds more easily and, in many cases, more cheaply than through a bank loan. Similarly, governments issue public debt to obtain funds from investors, whether large institutions or private individuals, in order to finance their projects and expenses.

When an individual purchases fixed-income securities, they are essentially lending money to the issuer (a corporate or government). In return, the issuer undertakes to repay the capital on a specific date, plus interest that is fixed from the time of issuance.

Fixed income is made up of financial debt products issued by governments, public bodies and private corporates to obtain financing. These products usually offer a return known in advance, although full repayment of the invested capital and the interest is not always guaranteed.

Fixed income covers a range of instruments, such as bonds, debentures, promissory notes, certificates of deposit and treasury bills. Considered a more stable investment than equities, the return is usually lower, although it depends on the situation of the markets.

Basic steps to invest in fixed income

1. 1. Learn the basics: Before you invest any money, you need to understand what fixed income is and how the different products work. This will help you make better decisions.
2. 2. Define your goals: Think about what you want to achieve with your investment: save in the medium or long term, obtain a regular income, or preserve your capital. Your goals will determine the type of fixed income that is most suitable for you.
3. 3. Choose the products: Bonds, debentures, promissory notes and treasury bills are some of the instruments you can invest in. Each type has its own characteristics and risk levels, so it's advisable to be well informed before choosing.
4. 4. Diversify your investments: To reduce the risks, it's advisable not to invest all your capital in a single product. Combining different issuers and terms provides better protection for your money.
5. 5. Analyze the issuer's risk: In the case of private fixed income, it's important to assess the solvency of the corporate issuing the debt. As a guide, check the agency ratings about the payment capacity of issuers.
6. 6. Invest through an intermediary: You can invest in fixed income through financial institutions like Bankinter, which offers tools to search for different issues and start investing easily.