Where to buy the best fixed income investments

Fixed income investments pay a set amount of interest over time. As such they are useful in that they act as a useful source of recurring revenue.

This type of revenue stream makes it easy to plan for the future, and may be a good strategy for retirement etc.

There are a number of high yield investments that pay fixed income streams. Those listed do not necessarily guarantee that the initial investment capital will be returned in full, so speak to an independent financial advisor if you are unsure as to their suitability for your investment needs.

Corporate bonds are loans to corporations. They tend to pay a fixed level of interest over a set time period. The amount of interest paid is related to a company's credit rating - the poorer the rating the more interest the company will pay.

Corporate bonds are usually purchased by retail investors via corporate bond unit trusts, dividend paying mutual funds or ETFs. Popular corporate bond ETFs include the iShares Corporate Bond fund (stock symbol SLXX). There are a large number of bond unit trusts - these can be held in an ISA or SIPP. A bond fund will normally invest in a number of different bonds from different companies in order to minimise risk should a company default on their borrowings.

While traditionally corporate bonds were purchased via unit trusts, investment trusts or ETFs, there is the beginnings of a direct investment market in corporate bonds available for smaller retail investors. Both the London Stock Exchange (LSE) and Plus Markets have a number of corporate bonds that can now be invested in directly.

Gilts are loans to governments. Gilts can either be regular gilts, which pay a set amount of interest, or inflation linked gilts, which pay a certain amount of interest dependent upon the rate of inflation. Gilts are also offered for a set amount of time, usually in years.

For purchase in an ISA or SIPP, gilts can be purchased though either Exchange Traded Funds (ETFs) or unit trusts. Legal & General have a few gilt unit trusts with low annual charges - they have a standard gilt fund as well as an inflation linked fund. The iShares ETF provider has a number of ETFs that contain holdings in gilts.

As well as buying gilts from your own government, it is of course also possible to buy gilts from international governments. There are a few unit trusts that contain holdings in emerging market debt. These funds can sometimes pay high dividends as emerging markets often pay high rates of interest due to the risk of default.

This is a less well known fixed income investment, but it can be a nice way to generate income.

There are a number of peer to peer lending websites that take investment money then lend it out to people who want to borrow money. The best known peer to peer lending website is Zopa. Zopa operates in the UK, Japan and Italy. It takes investment money from the residents in that country, then lends it out again, usually to consumers. Consumers usually want to borrow money though Zopa for car or home improvement loans. Refinancing existing loans is also big business.

Money invested via Zopa is lent out in small bundles (usually of £10 in the case of the UK based website). Since money is lent out to many different borrowers, the risk of default is minimised. The lender specifies what interest rate they wish to lend their money out at. Naturally, the lower the interest rate the quicker the money gets lent out.

While Zopa is a good idea in theory, and the website is a fun way to manage your investments, it can be slow to get the capital investment back as it is lent out for either 3 or 5 year terms. Due to the risk of loan default, there is also no guarantee as to the safety of the initial investment capital. Interest earned via Zopa is also subject to income tax.

The author of this article is not authorised by the UK authorities to give financial advice. This article does not consitute financial advice. Before making investment decisions consult an independent financial advisor.