Types of fixed income: see what they are and find out how to choose
There are several types of fixed income for those who want to invest safely!
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Investors looking for more conservative investments should know what the main types of fixed income are.
After all, this investment category is the best option for those who want to start investing, but without taking risks.
This is because fixed income products offer more security and predictability than variable income.
However, this does not mean that only the most conservative investors should consider investing in this investment category.
In fact, the more moderate and bold can also resort to fixed income to diversify their portfolio and minimize risks.
What are the types of fixed income?
Basically, there are three types of fixed income: prefixed, post-fixed or hybrid.
In each of these modalities, the calculation of the security's yield is fixed and defined at the time of application, as is the maturity date.
The three types differ in the reference used to calculate interest.
Let’s understand better how each of them works?
Prefixed profitability
Prefixed bonds have fixed interest rates.
In other words, at the time of hiring, you can already know exactly how much you will receive on the due date.
The income is fixed and does not change according to economic conditions.
For example, if you invest in a fixed-rate CDB that pays 7% per year, this will be the income received at the end of the contracted period, that is, of course, if you do not redeem it before maturity.
This is because when you invest your money in a fixed income product, an agreement is made with the issuer of the security to define the minimum period that this investment will yield.
If you withdraw the money before the established date, you may lose profitability or even have to pay extra fees.
When to choose a prefixed title?
Prefixed bonds are good options for those looking for security and predictability.
Therefore, they are recommended for conservative investors, who don't want to take risks.
Beginner investors can also benefit from this type of investment. By starting with fixed-income securities, you gain experience in the market without taking risks, and you also know exactly how much you will receive on the maturity date.
Another advantage of fixed-income securities is protection during market downturns, as the return on investment is not directly impacted by any economic indicator.
In short, if you want to know exactly how much your investment will yield by the set date, fixed-income securities are great options for your asset portfolio.
Post-fixed profitability
Post-fixed profitability is expressed as a percentage of the rate or index it tracks.
This means that income is linked to some economic indicators and therefore varies as they fluctuate.
There are three indexes that are used to influence the yield of these bonds:
• Selic rate: Selic is the basic interest rate of the economy. It is a monetary policy instrument used by the Central Bank (BC) to control inflation, defined every 45 days by the BC's Copom (Monetary Policy Committee).
• CDI (Interbank Deposit Certificate): The CDI is the interest rate charged on interbank loans. The CDI rate is correlated with the Selic rate.
• IPCA (Broad Consumer Price Index): This indicator is considered the official thermometer of inflation in Brazil.
On the maturity date of the post-fixed securities, the investor will redeem the amounts invested plus the profitability acquired through the selected financial indicator.
When to choose a post-fixed security?
Post-fixed securities are among the most common on the market, as they follow the economic moment.
It is a good option for those who prioritize safety and do not want to take risks.
Furthermore, they have low volatility and do not cause losses for investors who withdraw the amount invested before the maturity date.
That is, if you are thinking about build your emergency fund, It is worth investing in a post-fixed security, such as the Tesouro Selic, for example.
As these investments are linked to a specific indicator, investors find good earning opportunities through them.
In this way, as a result of the increase in interest rates, they are able to obtain more advantageous returns, but in a stable and secure manner.
Hybrid profitability
Hybrid securities combine the characteristics of fixed-rate and floating-rate securities.
In other words, part of the profitability is fixed and the investor already knows it at the time of contracting and the other part follows an economic index, such as the IPCA.
The public title Treasury IPCA represents well the type of profitability of this investment.
These bonds yield the percentage variation in inflation, which is the IPCA.
The main objective of this application is to protect the investor's money against inflation, which reduces purchasing power.
When to choose a hybrid title?
Hybrid profitability investments are good options for those who want to invest with a long-term view.
After all, this way, the investor can protect their assets and guarantee their purchasing power.
Demand for government bonds generally increases when a country experiences a period of accelerated inflation.
But when the country's inflation is under control, these bonds don't attract as much attention.
What are the main fixed income products?
There are several types of fixed income investments.
They are characterized by profitability, liquidity, risk, term, issuer, among others.
Below, see which are the most popular fixed income investments:
• Direct Treasury
• CBD
• LCI and LCA
• LC (Bill of Exchange)
• CRI and CRA
Conclusion
Now you know what the main types of fixed income are and the advantages of each one.
If you want to invest safely and predictably or want to diversify your portfolio, fixed income is a great option for you.
But before anything else, it is important to know your investor profile and set short, medium and long-term goals, as well as, of course, putting together a financial plan!
