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The main risks of fixed income investments

Fixed income investments are corporate or government bonds that include preference shares, subordinated bonds, enhanced capital notes and permanent income bearing shares. Preference shares are accessed by corporate bonds or from a corporate bank loan. A fixed income is essentially a fixed payment that is invariable, such as a pension.

Many retail banks like Barclays and Natwest or private investment banks like London-based firm Incapital Europe provide fixed income securities and structured investments for professional investors and institutions. They usually provide ‘open offer’ investments and employ advisers to assist individuals in finding the best solutions for their money. The terms of a fixed income bond are set out in a contract known as an indenture and a coupon shows the level of interest that the lender must repay.

A successful fixed-income investment depends on robust investment research, which creates smarter and better-informed strategies, leading to greater profits for investors in the long-term. However, one of the main risks of these types of investments is that their long-term profitability can be seriously compromised if there is an increase in inflation. People who are investing abroad may also loser their buying power if their currency weakens against other major currencies like the Euro and the US Dollar.

Individuals who are experiencing financial difficulties may also be unable to repay the investment, leading to an even greater loss of investment. Furthermore, any tax changes or interest rate alterations set out by the government could also have a negative impact on a fixed income investment, in addition any changes in the market.

For more information on fixed income investments, visit direct.gov.uk

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