Learn all about fixed income and variable income investments, the difference between the two modalities and the main assets.

Understanding what is fixed income and variable income , as well as the difference between both modalities, is essential for those who are starting in the world of investments.

Basically, the investor takes his first steps towards investing when he starts to understand the difference between these two modalities . After all, it is from this definition that he can choose the best investments according to his profile.

With that in mind, we’ve prepared this content with everything you need to know about these two investment modalities , including the difference between fixed income and variable income, so you can choose the best option!

What is fixed income?

Fixed income investments are a security for financing projects of companies, banks or government activities .

Therefore, the investor receives the borrowed money with the addition of interest . The calculation is performed based on the title type.

Fixed income has three types of rates: prefixed (a percentage is established to determine profitability), post-fixed (the rate is linked to an economic indicator such as CDI, IPCA or Selic, for example) and hybrid (union of the two models ).

The simplest way to understand this investment is by comparing it to a loan. In this case, the investor lends money to a financial institution or the government. Interest can be paid into account periodically or accrued until maturity.

Examples of fixed income

Discover now the main examples of fixed income and the characteristics of each one of them:

Public titles

Public bonds are investments, also called papers, issued by the National Treasury in order to raise funds for the government .

This means that these investments finance government activities and projects , such as health and education, public projects and social actions.

These securities are divided into four different categories , namely: Fixed-rate Treasury, Selic Treasury, IPCA + Treasury with and without half-yearly interest and Fixed-rate Treasury with half-yearly interest.

CBD

The CDB (Bank Deposit Certificate) is a type of private fixed income security issued by banks . In these investments, financial institutions raise funds to finance their projects, such as lines of credit, real estate financing, among others.

Therefore, the investor lends money to these private institutions and receives the amount with interest after the investment term. In the case of the CDB, the rate at which it yields can vary between fixed or post-fixed, such as the CDI or the IPCA.

LCI and LCA

LCI and LCA are also private securities issued by financial institutions in order to raise funds for certain lines of credit. In the LCI (Real Estate Letter of Credit), investments occur in real estate credit , while in the LCA (Agribusiness Letter of Credit) they refer to agribusiness .

The rate of these two investments can also vary between pre-fixed and post-fixed , such as CDI and IPCA. But something very interesting about them is that they have income tax exemption on income. This is a government strategy to stimulate the growth of the real estate and agribusiness sectors.

Savings

Savings is the best known fixed income investment among all. It is an account, which can be easily opened at any bank, where you keep your money and it earns at an annual rate.

This is one of the lowest yielding investments on the market , but because it is easy to invest , most people enter the world of investments from a savings account.

In this investment, income is also exempt from Income Tax and the investor needs to leave the money in the account so that it can earn monthly.

What is variable income?

Variable income is a type of investment in which the investor does not have predictable returns at the time of application.

As the gain is linked to the variation in the price of the assets and how the financial market will work, it is not possible to know how much the investment will yield or even lose money, if it devalues.

Some fluctuations in asset prices occur according to the law of supply and demand . As more investors are buying an investment, it becomes scarcer and the price rises. But if there are many investors selling, the supply of the asset increases in the market and the price drops. In addition, other factors may compromise its value, such as the stability of its indices and the financial market situation.

However, the interest of investors in each security is influenced by several factors , such as inflation, economic situation, exchange rate, interest rates, internal and external political scenario, among others.

Variable income examples

Discover now the main examples of variable income and the characteristics of each one of them:

real estate funds

Real estate funds are investments where the funds raised are used to invest in the real estate sector , such as buying, selling or leasing real estate, acquiring securities or other related projects.

By investing in a fund like this, the investor becomes a shareholder and receives income according to his share.

Actions

Stocks are one of the best-known variable income investments. These are shares offered by companies on the stock exchange , with the aim of raising funds for the institution’s cash.

On the other hand, the investor who acquires these assets becomes a minority shareholder and can still carry out purchase and sale operations with other investors based on specific strategies, but they need to be negotiated in the stock exchange environment.

futures

Futures or futures markets are investments in which the investor establishes an operation for the purchase or sale of a certain asset, for a future date and with a pre-defined value .

In this case, he buys or sells an asset , which can be an index, currencies or commodities, at a prearranged price. The completion of the operation only takes place at the time established in the contract, on a future date.

Exchange

Buying foreign currency on the stock exchange is a derivative market . The investor acquires a certain amount of foreign money, dollar futures, for example, for a pre-established amount, but will only receive the amount in the future.

In this case, the investor expects the value of the currency to be greater than what he paid , on the date established in the contract.

Differences between fixed and variable income

Now that you already know the definition of fixed income and variable income, let’s understand a little about the main differences between these two modalities. Follow:

  • Profitability : fixed income offers a forecast of profitability, whereas variable income does not.
  • Risks : fixed income may offer less risk for the investor, as some investments are covered by R$ 250,000 from the Credit Guarantee Fund in case of bankruptcy of the security issuer. Despite this, variable income can still be a good option, especially when managed by financial market professionals.
  • Volatility : volatility is the oscillations that occur in investments, and the more volatile, the greater the risk. In this case, fixed income and variable income may present some flexibility, as they include several assets.
  • Liquidity : Liquidity is the speed with which the investment is liquidated, or turned into cash. The two types of income can be highly or poorly liquid, depending on the type of asset.

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