Insights on fixed income investing fundamentals by CAL

2 April 2015 07:23 am Views - 1796

CAL Treasuries CEO Gihan Hemachandra


Capital Alliance (CAL), Sri Lanka’s leading full service investment bank, has long been recognized as a market leader in Sri Lanka’s financial and investment arena. The company has helped both blue-chip conglomerates and individuals to make significant returns on their investments and transactions.

CAL Treasuries headed by Chief Executive Officer Gihan Hemachandra shared valuable insights of fixed income investing to potential investors. Hemachandra leads a dynamic team of 10 professionals who handle the company’s rapidly expanding portfolio.

How fixed income securities work: Fixed income securities are investments that provide a return in the form of fixed periodic payments and promise the return of capital invested on a predetermined maturity date. Fixed income instruments can generally be classified as those issued by the Government of Sri Lanka (generally known to be risk-free instruments and termed ‘gilt-edged securities’) and those issued by companies (commonly known as credits or corporate debt). Fixed income instruments differ from deposits because they are tradable by nature and provide investors with an early exit opportunity if it is ever required.”

Why investors should make fixed income investments:  Fixed income instruments provide stability, arising from fixed interest yields throughout the investment period. A variety of options within the asset class (e.g. Government treasury bonds, corporate bonds, etc.) and maturities (tenures ranging from one day to 30 years) further serve to add to the stability proposition. A more profitable method of investing in fixed income is through leveraged trading. In summary, an investor can use the fixed income instrument they have invested in as collateral to borrow against and reinvest in more of the same or similar instruments. The immediate additional return from leveraged trading arises out of carrying a tenure mismatch. Investors can determine the appropriate timing of entry and exit for the strategy, thereby netting substantial capital gains using the knowledge and expertise of CAL’s fixed income advisors.

CAL offers fixed income investments through a variety of instruments including the trading of Treasury bills and bonds, repurchase and reverse repurchase agreements, leverage trading on government securities, listed and unlisted debentures, commercial papers, securitizations and interest rate swaps and forwarding rate agreements.

Clients can initially make money through interest, which is accrued over time on their investments. Thereafter, capital gains can be earned from an overall fall in market yields and/or contraction in credit spreads. Maintaining maturity mismatches on fixed income portfolios also results in a high net interest income.
Factors to consider when making fixed income investments: The client can get a first-hand experience of how this asset class works by investing in its simplest form, known as repos (repurchase agreements). This initial learning can provide comfort and pave the way for the more sophisticated products offered by CAL. When investing in the more sophisticated products, the client should have a medium to long-term appetite with a broad investment outlook. He or she should be able to understand the relationship between yield and the price of fixed income products, as this is vital in making an informed decision in the course of active fixed income trading. Clients should also be able to understand the risk of interest rate volatility should the need arise to exit an investment. CAL’s advisors are well informed and are therefore capable of educating and advising clients, so that they can make wise and profitable investments.

CAL is continuously striving to become the preferred partner in financial markets. Having commenced operations in October 2000, CAL has established itself as a leading player in the financial markets of Sri Lanka. The company specializes in the origination, trading and investment of debt and equity securities and this mix of expertise and services allows CAL to offer integrated and customized solutions to its customers across the entire financial spectrum.

The company strives to build lasting relationships with all of its clients in order to acquire an in-depth understanding of their needs and goals. In a short period of time, CAL has built a reputation for itself as a market leader by consistently delivering excellence in execution, world-class research and product innovation.