Why invest in Interest Rate Securities
Interest rate investments have the potential to provide investors with a regular income stream, whereas returns from share investments fluctuate in line with the profitability of the company. Interest Rate Security holders can be seen as creditors of an entity and their return is a fixed rate of interest paid regularly until the face value of the security (the loan principal) is repaid by the entity at maturity. Being creditors, Interest Rate Security holders have prior claim on the entity's assets relative to shareholders in the event of winding up.
In the case of Exchange-traded Australian Government Bonds ("AGBs"), a holder obtains all the economic benefits (including payments) attached to legal ownership of the underlying Australian Government Bond, which are direct, unconditional, unsubordinated and irrevocable obligations of the Australian Government. For more information, read the Information Statement provided by the Australian Government.
Interest Rate Securities may help you reduce risk and diversify your investment portfolio. By combining Interest Rate Securities and shares in a portfolio, investors may be able maximise return, minimise risk and achieve an 'optimised portfolio' where risk equals reward.
Diversification is achieved by having a number of different asset classes in an investment portfolio as well as increasing the number of individual investments within an asset class.
Interest rate investments may also be used for a number of different and concurrent reasons, including to stabilise a portfolio, to reduce its overall risk or to provide a temporary haven for profits. In the short term, they may also be useful in helping preserve the value of an investor's capital while you wait for new investment opportunities.
Investing via ASX's Interest Rate Security market
ASX's Interest Rate Security market gives investors easy access to a market where they can buy and sell interest rate securities in the same way as they buy and sell shares.
The market provides investors and their advisers with ready access to information about the price, return (yield) and ratings of different interest rate securities and facilitates comparisons with other interest rate products.
A list of Interest Rate Securities and Exchange-traded Australian Government Bonds and their prices are published daily in the Australian Financial Review, as well as being available on the ASX website.