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Risks and benefits 

An investment in hybrids can generate regular income with some equity-like benefits and risks. Hybrid securities are generally complex in nature with potentially higher risks than other forms of investment. Investors should obtain independent advice before making any investment decisions.

Potential benefits of investing in hybrids

Some of the reasons investors may choose to invest in hybrid securities include:

  • the potential to receive an income stream for a pre-determined period, although the certainty of cash flows varies depending upon the hybrid structure
  • typically higher interest rates than paid on bonds, with the higher interest rate reflecting the higher risk profile of hybrids
  • diversification, and
  • the potential to benefit from anticipated movements in interest rates or equity prices

Potential risks of investing in hybrids

Generally, hybrid securities pay higher returns than bonds because there is usually a higher level of risk attached to a hybrid security than to a bond. Special care should be taken when assessing the risk of hybrid securities due to the blend of equity and debt characteristics, as the price may behave quite differently in different market scenarios. Hybrid securities are generally complex in nature with potentially higher risks than other forms of investment. Investors should obtain independent advice before making any investment decisions.