What are fixed income securities linked to inflation?
Find out which are the main fixed income securities linked to inflation!
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Fixed income securities linked to inflation can help protect your assets and maintain purchasing power.
In fact, rising inflation, which is a recurring issue in the financial market, is attracting the attention of small Brazilian investors.
Depending on the profitability of the investment, you may actually be losing your purchasing power.
Therefore, having at least part of the asset portfolio reserved for investments that offer real returns, that is, above inflation, becomes even more important in the current moment in which we are living.
Check out, below, the main fixed income securities linked to inflation that will protect your capital from price increases and currency devaluation.
What is inflation?
The inflation rate, basically, is the increase in the price level.
It represents the increase in the cost of living for the consumer, which is the result of rising prices and currency devaluation.
When inflation rises to very high levels and at an accelerated rate, consumers and businesses are harmed.
It is normal for prices to increase within a planned target. The problem is when inflation exceeds the target percentage.
In 2021, inflation in Brazil exceeded the inflation ceiling (which is 5.25%) and reached (10.06%).
Consequently, the purchasing power of Brazilians has decreased a lot.
Fixed income securities linked to inflation
For an investment not to suffer from inflation, its profitability must be greater than the increase in prices.
This means that to protect your capital, you need to start investing.
In other words, if you leave your money in savings, you are actually losing money, both in the short and long term.
To help you, we will show you the main fixed income securities linked to inflation and explain the main characteristics of each one. Take a look:
1. IPCA Treasury
The IPCA Treasury is a public security issued by the Government.
Its index is the IPCA — Broad National Consumer Price Index.
It is one of the three types of public bonds available, in addition to the fixed-rate Treasury and the Selic Treasury.
With inflation rising, many investors, even moderate and bold ones, began to take an interest in IPCA Treasury, a fixed income investment, with part of its profitability linked to the IPCA and part to a fixed rate.
Typically, the bond matures in the medium or long term. However, if you wish, you can redeem it earlier, as all Treasury bonds offer daily liquidity.
However, to make the early redemption, it will be necessary to resort to the secondary market. And this does not always guarantee the same profitability contracted at the time of acquisition of the title.
Therefore, the ideal is that you wait for the due date to arrive to withdraw your money!
It is important to mention that your investments in Tesouro Direto are subject to Income Tax and IOF.
However, IOF is only charged when the application is redeemed in less than 30 days.
2. LCI and LCA
LCI (Real Estate Credit Letter) and LCA (Agribusiness Credit Letter) are two types of fixed income investments that are exempt from Income Tax.
These are credit securities issued by financial institutions to finance activities in the real estate and agribusiness sectors.
As they are low-risk investments, the returns from LCIs and LCAs are almost always positive.
However, returns depend on the interest rates to which they are linked.
The most common structures are:
• Prefixed letters: here, you will know exactly how much you will receive at the end of the application.
• Post-fixed letters: are income whose redemption value is linked to a variable rate, such as the CDI and the IPCA.
• Inflation-linked letters: profitability is made up of the variation in inflation plus a fixed rate.
LCI and LCA are protected by FGC (Credit Guarantee Fund).
3. CRI and CRA
Real estate receivables certificates (CRI) and agribusiness receivables certificates (CRA) are fixed income investments that are part of the so-called private credit.
They are backed by credit operations linked to the real estate and agribusiness sectors.
The difference between this investment and letters of credit is that CRI and CRA are issued by securitization companies. In addition, receivables certificates are not covered by the FGC.
When linked to inflation, they present hybrid profitability, just like the IPCA Treasury.
This means that the minimum annual interest payments are added to a variation in inflation.
4. Inflation funds
Inflation funds, as the name suggests, seek to replicate or surpass an inflation index.
Basically, they are collective fixed income alternatives that protect financial resources and maintain purchasing power.
The portfolio of these securities may include publicly issued securities, such as the Treasury IPCA, as well as private issues, such as LCIs/LCAs and other assets.
One of the main benefits of inflation funds is practicality, as the job of choosing the securities is the fund manager's.
How to choose fixed income securities linked to inflation?
Before anything else, it is important for you to know that each application has different characteristics in terms of security and real return.
While they help protect your capital and maintain purchasing power, it is important to take other factors into consideration before making an investment.
In other words, it is necessary to evaluate your investor profile, your short/long-term financial objectives and the real return on investments.
Conclusion
Now you know which are the main fixed income securities linked to inflation.
As you have seen, they are good alternatives to protect your capital from constant price increases, avoiding the loss of purchasing power.
To reduce investment risks, it is important to diversify your portfolio, so that you do not invest all your capital in a single investment.
