Fixed income refers to those assets and securities in which investors put money to get a fixed source of income. These are generally in the form of either interest or dividends, paid until the maturity date. On maturity, the principal amount which was invested along with interest is paid to the investor. The most common types of such investments include treasury bills, government, and corporate bonds.
What is Fixed Income Research
Fixed income research refers to evaluating the value of the debt security of a particular investment. Various factors affect such analysis. These include interest rates, market supply and demand, the financial performance of the issuer, and prior debt repayment obligations. So, let’s get you started on why it is essential for making informed investment decisions.
Why are Fixed Income Research Services Important in Making Informed Investment Decisions?
The fixed income research services are crucial in making informed decisions. It comes with a myriad of benefits, let’s check what they are:
- Reduced Risk
Fixed income investments are comparatively less risky than other investments. It assures the investor of a fixed sum of money for a predetermined time. It is imperative to analyze such securities since it helps evaluate and compare with other securities and helps the investor determine where they should invest. The importance of such analysis is listed below.
- Diversified Portfolio
An investor invests in various securities to minimize the overall risk arising from fluctuations in market prices. Fixed-income securities are generally preferred for conservative investors. With fixed research analysis, a diversified portfolio comprising fixed income products and changing stocks is made as per the investor’s requirements.
- Fixed Source of Income
Many factors influence the stock market. These include speculation of demand, government policies, international transactions, and market forces. Such fluctuations, in turn, influence equities, and variable income securities. However, the income from fixed income products is determined in advance. With fixed income research, an investor can be assured a fixed source of income for a more extended period.
- Preference of Payment
Fixed-income investors are given preference to other stockholders or the same enterprise. This preference means that payments will first be made to fixed-income investors and then to other shareholders in case of bankruptcy. Therefore, with the help of fixed income analysis, the investors evaluate such factors and risks and accordingly decide which stocks are best for investments.
- Investment Strategy
An accurate investment strategy compares and evaluates the risk of different securities in the market and opts for one that ensures maximum investor returns. Fixed income analysis helps investors prepare investment strategies after considering the stock’s previous performance and thus gain insights into the best stocks to invest in the market. This approach applies to investment strategies like momentum, value, growth, quantamental, dividend, and dollar-cost averaging strategies.
Valuation of Fixed Income Securities
For the determination of the value of fixed income securities, two main factors are taken into consideration. The first is cash flows from such securities, and the second is the yield. These are explained below.
- Expected Cash Flows
There are two primary sources of cash flows while investing in fixed-income securities. These are the interest payments made at periodic intervals and the principal amount paid at the end of the maturity period. Both these are essential for any fixed income analysis process.
Yield refers to the total income which is generated on a particular investment over a given period of time. It is an essential factor that facilitates the comparison of different securities. The yield is expressed as a yearly percentage that depends on the investment’s acquisition cost, the market value, or overall face value.
The yield value is applied to an enterprise’s expected cash flow, which determines the value of fixed-income securities. After this process, the comparison is made between different market securities, and the one with the highest value is selected.
Fixed income research is an essential factor that influences investments in the market. The expected cash flows and yield primarily determine the overall valuation process of fixed-income securities. These are determined by numerous factors such as the company’s financial performance, credit risk, interest rate changes, liquidity risk, and market fluctuations. Acuity Knowledge Partner offers top-quality research and analysis facilities where an accurate market evaluation is provided to all investors for investments.