Fixed income investments are one of the most popular options for investors seeking security and predictability in their returns. They offer more stable returns compared to variable income investments and are ideal for both beginners and those looking to balance risk in their investment portfolio.
In this article, you will learn what fixed income investments are, how they work, and the main options available in the market.
What Are Fixed Income Investments?
Fixed income investments are financial instruments where the return rules are known at the time of investment or follow a benchmark index, such as the Selic rate or the Consumer Price Index (CPI). This means that investors have greater predictability about how much they will earn over time.
These investments are issued by financial institutions, private companies, and even the government. They serve both to finance public and private projects and to offer a safe investment alternative for savers.
How Do Fixed Income Investments Work?
Fixed income investments work like a loan that an investor provides to a financial institution or the government. In exchange, the investor receives compensation, which can be structured in three main ways:
- Pre-fixed: The interest rate is determined at the time of investment, ensuring that the investor knows exactly how much they will receive at the end of the period.
- Post-fixed: The return follows an economic indicator, such as the Selic rate or CPI, meaning earnings can fluctuate based on market conditions.
- Hybrid: A combination of a fixed return with an inflation-linked component, such as CPI + a fixed rate.
The choice between these types depends on economic conditions and the investor’s financial goals.
Main Types of Fixed Income Investments
1. Treasury Bonds (Tesouro Direto)
The Treasury Direct program allows individuals to invest in government bonds. These bonds function as a loan to the government, which, in return, pays interest to the investor. There are different types of Treasury bonds:
- Selic Treasury: Ideal for those seeking liquidity and security, as it follows Brazil’s basic interest rate.
- CPI+ Treasury: Protects against inflation by combining a fixed rate with CPI variation.
- Pre-fixed Treasury: Offers a fixed return upon maturity, ideal for investors looking for predictability.
2. CDB (Bank Deposit Certificate)
CDBs are financial products issued by banks to raise money from the market. In return, banks pay interest to investors. CDBs can be:
- Pre-fixed: A fixed annual interest rate.
- Post-fixed: Follows a benchmark index, such as CDI (Interbank Deposit Certificate).
- Hybrid: A combination of a fixed percentage and an inflation-linked index.
3. LCI and LCA (Real Estate and Agribusiness Credit Letters)
Issued by banks to finance real estate and agribusiness sectors, these investments are tax-exempt for individual investors, making them attractive for those looking for tax-efficient returns.
4. Debentures
Debentures are bonds issued by private companies to raise funds. They offer either fixed or variable returns but come with a higher risk since their repayment depends on the financial health of the issuing company.
5. National Treasury Bills (LTN) and Financial Bills (LF)
These are long-term securities issued by the government and financial institutions, usually recommended for more experienced investors.
Advantages and Disadvantages of Fixed Income
✅ Advantages
✔ Security: Many fixed income investments are protected by the Credit Guarantee Fund (FGC) up to R$250,000 per CPF and institution.
✔ Predictability: Especially in pre-fixed securities, where the investor knows the exact return.
✔ Variety of Options: There are investments for different profiles and objectives.
❌ Disadvantages
❌ Limited Profitability: In low-interest environments, returns may be lower than in variable income.
❌ Liquidity Constraints: Some investments have long terms and may not be withdrawn before maturity without financial loss.
❌ Inflation Risk: Fixed-rate investments can lose purchasing power if inflation rises significantly.
How to Choose a Fixed Income Investment?
Before investing, consider the following factors:
- Investment Goal: Are you looking for an emergency fund or a long-term investment?
- Maturity Period: Ensure that you won’t need the money before the investment’s maturity.
- Expected Returns: Choose between pre-fixed, post-fixed, or hybrid options based on economic conditions.
- Risk Level: Check if the investment is backed by the Credit Guarantee Fund (FGC) or depends on the financial health of the issuing institution.
Is It Worth Investing in Fixed Income?
Fixed income investments are an excellent option for those seeking security, stability, and predictable returns. They can be used to protect assets or balance a more aggressive investment portfolio.
If you are starting out or want to ensure a low-risk investment, fixed income can be a great path to achieving your financial goals.