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Fixed income securities refer to investments which provide a return in form of fixed periodic interest payments and the eventual return of the principal at maturity.
Fixed Income Securities are suitable for clients looking for relatively safe investment options, which pay a fixed periodic return at regular intervals. This is also suitable for clients who are looking for relatively low levels of volatility in their investment portfolios.
Fixed Income Securities are debt instruments that pay fixed interest amounts on predetermined dates as stipulated in the security’s prospectus. Equities represent partial ownership in the issuer and pay dividends out of profits made and as stipulated in the company’s dividend policy.
Fixed interest rate securities are those in which the interest payable is fixed beforehand. Floating interest rate securities are those in which the interest payable is reset at pre-determined intervals according to a pre-determined benchmark.
Credit quality, yield and maturity.
Credit quality points to the ability of the issuer of the Fixed Income Security to pay back it’s obligation. This is done by independent third party rating agencies for objectivity.
Maturity is the time over which the fixed income security will run i.e. the life of the security during which it will pay interest. At the end of maturity, the issuer pays the final interest amount and the face value back to the investor.
The maturity date marks the end of the life of the fixed income security where the last coupon payment and the principal amount are paid back to the investor.
This is the risk that the bond issuer or borrower is unable to meet the coupon or principal payments on any outstanding bonds or debt (not just the bonds you may be holding) when they fall due (for example, due to bankruptcy or insolvency), and go into default.
Long term securities are expected to offer higher returns because clients expect a premium to lock in their money for longer periods of time.
Interest rates are determined by economic factors including inflation, government debt levels, demand & supply of money.
Interest rates and bond prices are inversely related. Should interest rates rise, the price of your bond will tend to fall (and vice versa). The longer the time to maturity of a bond, the greater the interest rate risk.
Some bonds are denominated (and issuers payments made) in a foreign currency, which may fluctuate against your local currency. The impact of such foreign exchange movements may offset any interest or capital gains you may receive from bond investment.
Coupon Rate is the absolute rate of return applied to the face value to generate the periodic cash flows distributed to investors over the life of the bond.
Disclaimer – Standard Chartered Bank Uganda Limited is regulated by Bank of Uganda. Customer deposits are protected by Deposit Protection Fund up to UGX 10 million. Terms and conditions apply. Our Investment Products and Services are distributed by Standard Chartered Bank Uganda Limited (SCBU) that is licensed by the Capital Markets Authority as an Investment Advisor.