What are XTBs?

Last week we covered what fixed income is (investment products that provide you with income at regular intervals for a set period of time). One of the ways you can access fixed income is through XTBs (exchange traded bonds units).

Being exchange traded means you can buy and sell XTBs just like shares, giving you the ability and flexibility to add fixed income investments to your portfolio.

Essentially XTBs are listed corporate bonds.

Corporate bonds are issued by companies like Qantas or NAB that need to borrow large amounts of money. So they'll issue bonds which are like 'IOUs' to borrow money, typically from institutions or sophisticated investors - in this case, the lenders are 'buying bonds'. The issuers agree to pay back the money to the lender on a set date (maturity date), during which time they will pay the lender interest in the form of coupons at regular intervals.

Up until XTBs came to market last year, the benefits of corporate bonds have historically only been available to investors that have a lot of money (as the minimum investment amount is typically $500,000). Not exactly spare change!

But with XTBs being listed on the ASX, you can invest in them for as little as $100 (broker depending. At OpenMarkets our buy minimum is $500).

This is a very basic explanation of XTBs and corporate bonds. There's much more to it, including different types and they way interest is paid.

For more about XTBs and how they work, and for the list of 39 XTBs available, check out our latest OM blog by Tracey Franks.

Please note this is general advice only. As with investing in any product, you should always do your homework and understand the fees and risks involved, versus the benefits.