Investment Types

Fixed Income Securities

A fixed income security or bond is like a loan. It’s an investment that provides a return in the form of fixed periodic payments and eventual return of principal at maturity. The day the fixed income investment is to be paid back to you is called the maturity date.

When companies or governments need to borrow money, they may issue a bond. People who buy the bond are lending their money and will be paid interest on it. The bond is the IOU or contract between the borrower and the lender. The “coupon rate” or interest rate (the charge that is levied for the use of your money), is outlined in the bond as well as the term (the length of time that the loan will be outstanding).

Bonds that mature within a year are often referred to as money market instruments. The issuers of these investments are scored by various rating agencies for the riskiness of their issue and their ability to pay back their loan. Trades typically settle in one business day but settlement can be required for the same day depending on the issuer.

Learn about the many kinds of Fixed income securities.

 

Guaranteed investment certificate (GICs)

A guaranteed investment certificate is an investment that offers a guaranteed rate of return over a fixed period of time. It is most commonly issued by trust companies or banks. Because of its guaranteed rate, the return is generally less than other fixed income investments, such as corporate bonds.

Key features:

  • Redeemable only at maturity
  • Interest rate determined by frequency of interest payment
  • Interest paid monthly, quarterly, semi-annually, annually or at maturity
  • Terms to maturity range from 30 days to five years
  • Insured up to $100,000 when issued by a CDIC member
  • Same day settlement

 

Bankers’ acceptance

Bankers’ acceptance (BA) is a short-term money market instrument guaranteed by banks. You won’t get rich putting your money in BA, but their reputation as one of the safest Canadian investments makes an ideal place to park cash while you’re deciding what other investments to buy.

Key features:

  • Safe and secure
  • Liquid, so they’re readily traded
  • 30, 60, and 90 day terms; terms from one to 365 days are available but may be less liquid
  • Same day settlement

 

Commercial paper

Commercial paper is an unsecured, short-term investment issued by a corporation, typically to raise money for financing accounts receivable and inventory. It’s actually a short-term loan backed by the company’s credit rating. The stronger the company, the less risky the investment. A commercial paper is usually used to park money temporarily before putting it into a higher yielding investment.

Key features:

  • Slightly higher risk than treasury bills and bankers’ acceptances, unless the commercial paper is asset-backed
  • Terms range from one to 365 days
  • 30, 90, 182, and 365 day terms are the most liquid, or readily traded. Other terms, known as “off-the-run” issues, may have a slightly better yield but may be less liquid
  • The difference between the purchase price and the maturity value represents the return on investment
  • Same day settlement

 

Canada treasury bills (T-Bills)

Canada treasury bills are short-term debt instruments issued by the federal government in large denominations and sold at a discount.

Key features:

  • Safe and secure
  • Terms range from one to 365 days
  • 30, 90, 182, and 365 day terms are the most liquid, or readily traded. Other terms, known as “off-the-run” issues, may have a slightly better yield but may be less liquid
  • The difference between the issue price of the treasury bill and its par value (i.e., the principal amount stated on the face of the bill and redeemable at maturity) represents the investor’s return in lieu of interest
  • Same day settlement

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