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Investors looking to receive a steady stream of income often only consider bank term deposits. However, bonds (or Interest Rate Securities a type of ‘debt security’) traded on ASX can present an attractive alternative.
Bonds generally provide greater certainty on their income stream and return of capital, unlike equities. The regular interest income and principal repayments of bonds at maturity can provide a greater level of security for retirees or others (SMSFs). Learn more
There are three types of bonds quoted on ASX. They can be broadly classified into the type of interest they pay (fixed, floating or indexed), and can be split into categories based on the issuer (government or corporate).
ASX has produced a handy booklet – Understanding Bonds that you should read before investing in this asset class.
Hybrid securities traded on ASX can present an attractive alternative for investors who are looking to receive a steady stream of income. Further, in comparison to Bonds they generally pay a higher interest payment to compensate the investor for the added risk.
A hybrid security is one that combines elements of debt securities (fixed interest) and equity securities (shares). Hybrid securities, like debt securities, allow banks and companies to borrow money from investors with a promise to pay a rate of return (fixed or floating) until a certain date. They can also have equity-like characteristics and provide a higher rate of return than regular debt securities. In some instances, hybrid securities can be converted into equity securities (typically ordinary share), giving the holder an ‘equity-kicker’ if the underlying equity securities perform well.
There are three broad categories of hybrid securities traded on ASX:
Exchange Traded Bond units (XTBs) offer a new and exciting fixed income investment opportunity for all investors. They offer access to the performance and benefits of corporate bonds, which are normally not available directly for all investors.
XTBs are securities traded on ASX that bring together the income and capital stability of corporate bonds, with the transparency and liquidity of the ASX market.
^CANSTAR Online Share Trading Best Value Australia 2011 - 2016. CANSTAR Online Share Trading Outstanding Value Australia, casual investor 2011 - 2016. CANSTAR Online Share Trading Outstanding Value Australia, active investor 2013* By own client satisfaction. Investment Trends 2016 First Half Online Broking Report, based on a survey of over 15,000 investors/traders.