Posted in Finance, Accounting and Economics Terms, Total Reads: 422
Definition: Fixed Income
Fixed Income refers to a type of investing style in which an investor receives the income in the form of regular fixed payments at fixed time intervals. This type of investment is considered to be safe and is a preferred mode of investment for risk averse investors or investors who are dependent on the regular and timely cash flows that this investment provides. The major class of such investors are the retired individuals who rely heavily on the timely and reliable cash flows from these type of investments. The securities that provide fixed income are generally referred to as fixed income securities.
Some of the examples of fixed income securities can be Bank Deposits (Bharat Co-operative bank providing 10.5% interest per annum for a period of 300 days), Company Deposits (Kerala Transport Development Finance Corporation Limited providing 10.5% interest per annum for 12 months), Bonds (Government of India Savings Bonds providing 8% interest per annum for years) and Small Savings Schemes (National Savings Certificate IX providing 8.8% interest per annum for 120 months or 10 years).
Though they are considered to be reliable and safe investment, the major risk that the fixed income securities face is the inflation risk. The periodical income that an individual is getting from a fixed income security today has high spending power than 5 years later from the same security due to inflation. Still, fixed income securities, specially the government bonds are considered to be highly safe and are chosen for safety reasons and diversification purposes.