About Interest Rate Securities

An Interest Rate Security is a security that pays a fixed or floating rate of return. This return can be in the form of interest or dividends. The issuer of an Interest Rate Security usually promises to pay you a specified rate of interest (a coupon) during the life of the Interest Rate Security and to repay the face value (issue price or the principle) of the interest rate security at a predefined time (maturity date).

The Australian Securities and Investments Commission (ASIC) has developed a guide on investing in corporate bonds, which will help retail investors better understand the risks and benefits of investing in corporate bonds. The guide covers what corporate bonds are, how they work, what the risks are and provides a checklist of things to look for when investing. For more information on corporate bonds and other investing topics, please see ASIC Fido webiste (www.fido.gov.au).

Benefits of investing in Interest Rate Securities

Interest rate investments can provide several benefits for investors including:

  • A regular income stream
  • Reduced risk through diversification
  • Portfolio stabilisation
  • A temporary haven for profits

Key product features

An Interest Rate Security is a debt security (sometimes called a bond). When you buy or subscribe for an interest rate security, you are lending money to a government, corporation or other entity, known as the issuer. In return for the loan, the issuer usually promises to pay you a specified rate of interest (a coupon) during the life of the interest rate security and to repay the face value of the Interest Rate Security (the principle) when it falls due or matures. Learn more about the characteristics of an Interest Rate Security.

The different Interest Rate Securities you can choose from include:

  • Commonwealth Government securities
  • Semi Government securities
  • Corporate interest rate securities
  • Structured credit products

Types of Interest Rate Securities

There are four types of Interest Rate Securities:

If you’re already using a broker to buy and sell shares, they may also advise on Interest Rate Securities. However if your existing broker is not active in the Interest Rate Security market, you may need to find a specialist broker in this area. The ASX website has a list of advisers specialising in Interest Rate Securities.

Risks

Interest Rate Securities have risks that investors should be aware of before investing. Specific risks include event risk and liquidity risk. You should obtain independent advice from a professional adviser prior to making any final decision.