With Australia’s official cash rate at a record low, finding secure income-generating investments for your SMSF can be challenging.

But there is good news. By looking beyond the cash and share investments that form the core of many SMSF portfolios, investors can still find assets generating a regular income without excessive risk. Some could even help you beat inflation with the potential for capital growth.

Here are four income-producing investments to consider.

1. Fixed interest

Fixed interest investments include government and corporate bonds; capital and subordinated notes; and debentures. When you invest in fixed interest, you’re effectively making a loan to the issuer, whether a government or a company. In exchange, you’ll receive regular interest payments, then get your capital back when the investment matures. While their terms vary, most offer a predictable income over a set time frame, usually at a fixed rate.


As an asset class, fixed interest investments generally combine a reliable income with a lower level of risk. Because your income is usually set in advance, you’re protected against falling rates, although you won’t benefit from any rate rises. If the company that issued the security fails, bond and note holders receive their money back before shareholders, so your risk is lower than with shares.

And fixed interest investments may help reduce risk significantly when added to a share portfolio. That’s because they can continue to produce a reliable income when shares are underperforming, helping give you more predictable returns overall.

Issues to consider

Fixed interest investments typically offer minimal capital growth potential, which could leave you vulnerable to inflation, especially if you or other fund members are retired. However, some fixed interest investments, like Australian government Treasury Indexed Bonds (TIBs) come with built-in inflation protection.

The most secure fixed interest investments may also offer relatively low yields. And while others offer returns well above the cash rate, that may be because they are issued by companies with a higher risk of default.

How to access them

In the past, it has often been difficult for individual investors to access fixed interest investments directly. But that all changed in late 2012, when the Australian government officially moved to make Treasury Bonds available on the ASX. You can also get exposure to corporate bonds on the ASX through XTBs, which are exchange-traded trusts that invest in a single bond.

2. Exchange Traded Funds (ETFs)

Most SMSF investors are already familiar with ETFs – managed funds traded directly on the ASX, just like shares. What you may not know is that ETFs can be used for much more than simply tracking a sharemarket index.

Over the last few years, the number of ETFs has multiplied, with a huge range of options now available, including ETFs specifically designed to generate income. They include funds that track fixed interest indexes, offer exposure to high-yield shares with regular franked dividends, or even invest in high-interest deposits.


Because they’re traded on the ASX, ETFs typically offer speed, transparency and liquidity. They can also be an effective diversification tool, helping you get low-cost exposure to assets that may otherwise be difficult to access as an SMSF investor.

Issues to consider

While ETFs are often seen as a low-cost option, remember that you’ll still pay a management fee. You’ll also pay brokerage when you buy and sell, and those costs can add up. As a result, they can sometimes be more expensive than an off-market managed fund, depending on how you invest.

How to access them

You can buy and sell ETFs on the stock market through an online broker like CommSec or your financial adviser.

3. Managed funds

You can use managed funds to get affordable exposure to a wide range of income generating assets.


Managed funds offer an enormous choice of investments, each tailored for a different balance between risk and return. Depending on the fund, you may also be able to switch options at no cost, without realising a taxable capital gain. And if you choose an actively managed fund, your investment will be overseen by professionals with specialist expertise in your chosen asset class.

Issues to consider

Professional expertise is great to have, but it does come at a cost. Not only will you pay higher fees for active management, but you’ll lose control over investment choices– which can be challenging for some SMSF investors.

How to access them

Invest directly with the fund manager or through your financial adviser.

4. Hybrids

Hybrid securities are widely held by SMSFs but not necessarily well understood beyond the issuer identity and the quoted rate of return. Hybrids can enhance returns to a portfolio and provide another level of diversification but investors should make themselves aware of their unique characteristics before making assumptions about the risk and rewards involved.


Hybrids can be traded through your on-line broker, greatly simplifying their purchase and disposal. For any given company, because they sit between a company’s bonds and equity in terms of risk, generally their return is higher than the bond but less than the dividend. They also tend to exhibit less volatility than the shares of the issuing company.

Issues to consider

Each hybrid is a one-off, with its own individual terms, and those terms can be complex. So it’s important to understand them thoroughly before you invest. Be aware that they can included provisions that could work to your disadvantage if the issuer runs into trouble – unexpectedly converting your holdings into ordinary shares, for example.

Hybrids are complex and for a more detailed examination of hybrids see our article here.

How to access them

You can buy and sell hybrids on the ASX, like shares.

Building your portfolio

With so many options to choose from, there’s no need to stop at one. By creating a diversified portfolio of income-producing assets for your SMSF, you can potentially earn higher yields while keeping risks under control.

It can be a good idea to choose investments with a range of maturity dates, so you don’t end up re-investing all your capital at a time when returns are low. Also remember that you’ll need to keep some cash handy to cover the costs of running your SMSF, like auditing, administration and advice. That’s where an SMSF cash account with competitive interest can help.

Remember that the capital value of all of these investments can be volatile. Even bonds may not give you your capital back if you trade them rather than holding them to maturity. In particular, if interests rates rise and you have to sell a bond before the maturity date, you may face a capital loss. And unlike cash, none of these investments are government guaranteed. However, as always, you can reduce risk through effective diversification.

It is recommended when building your portfolio, that you talk to an accredited SMSF adviser. They can work with you to tailor a portfolio that fits your precise needs, while still leaving you in the driver’s seat.

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

While potential SMSF investments have been illustrated within this content they do not represent a comprehensive suite of possible investment products and services within the guidelines pursuant to the SIS Act 1993 with ATO oversight.