What are fixed interest securities?
A fixed interest security is a way of 'lending' money to a government, or to a company, in return for a fixed rate of interest over a set period. This type of investment is intended to provide a regular, reliable income.
Every bond issued by a company or government is given a credit rating by companies such as Morningstar and Moody's. These credit rating agencies assess how likely it is that the company or government will be able to make the interest payments and repay the capital. The most secure rating is an AAA rating.
What are corporate bonds?
Corporate bonds are a type of fixed interest security. When you invest into a corporate bond fund, instead of 'lending' money to a bank - which is effectively what happens when you place money on deposit - we lend your money to companies who agree to pay an amount of interest over a certain period of time.
Corporate bonds are issued by different companies at varying rates of interest. Generally speaking, the more secure a company is, the lower the interest rates it will need to offer to attract investors.
Does 'fixed interest' mean 'fixed income'?
When held within a trust/ fund, 'fixed interest' does not mean 'fixed income'. Corporate bonds offer different rates of interest and mature at different times. Money may be invested into, or withdrawn from a fund that invests in corporate bonds. The income levels from trusts vary because bonds are continually bought and sold by the fund manager at different rates.
The value of your capital in a corporate bond fund is not guaranteed and will vary. The value of your investment is likely to fall if interest rates rise in the medium to long-term, but then again it could rise if interest rates fall.
How are income levels from corporate bonds indicated?
Yields are used to indicate the income levels received from corporate bond trusts. We always quote a distribution yield.
The yield gives an estimate of the amount of income payable over the next 12 months. The calculated yield assumes that the current investments are kept within the trust. Yields are published gross and will vary over time.Which Legal & General products invest in corporate bonds?
The Legal & General Income product range, available as a unit trust or ISA invest in corporate bonds.
