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. When you buy or subscribe for an interest rate security, you are lending money to a corporation or other entity, known as the issuer.
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).
Your first choice for more information should be the ASX online courses on Interest Rate Securities. Download the ASX education brochure Understanding Interest Rate Securities (PDF 146 KB) or listen to an Investor Hour podcast on ASX Interest Rate Securities to learn more.
From late May, 2013, retail investors will be able to buy and sell Exchange-traded Australian Government Bonds ("AGBs") as easily as they can buy and sell shares. It pays to know the ins and outs of these traditionally safe and stable investments. ASX has developed a free online course to help you familiarise yourself with the products and market.
The Australian Securities and Investments Commission (ASIC) has developed a guide on investing in corporate bonds (PDF 1.5MB), which may help you 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 MoneySmart website.
Benefits of investing in Interest Rate Securities
Interest rate investments can provide several benefits including:
- Pay a defined income stream
- Generally return their face value at maturity
- Enable you to diversify your investments
- Are bought and sold on ASX
- May offer tax advantages
Understanding the different types of Interest Rate Securities
There is a range of terminologies used to describe the types of Interest Rate Securities, which may refer to a key feature of a particular type of ASX IRS. Find out more about the distinguishing characteristics of the three broad categories (government bonds, corporate bonds and hybrid securities) and the sub-types within each category.
Finding a broker
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.
Interest Rate Securities have risks that investors should be aware of before investing. These risks include:
- The company will be unable to pay the promised distributions, or repay the face value at maturity (issuer risk)
- Your income will be affected by an unfavourable movement in market interest rates (interest rate risk)
- The value of your securities may be affected by changes in the company's share price
- You may not be able to sell your securities for a fair price (liquidity risk).
You should obtain independent advice from a professional adviser prior to making any final investment decision.