Fixed-Income Security

Posted in Finance, Accounting and Economics Terms, Total Reads: 317

Definition: Fixed-Income Security

Fixed income security as the word suggests provides a fixed income through fixed periodic payments and at the end of the maturity will pay the complete principle.

So, it is a type of investment in which the issuer of security is obliged to make payments of fixed amount to be given at fixed date. For example the borrower of money may have to pay to the security holder a fixed interest every year and give the final amount on maturity back to the security holder.

To understand it better let us compare a fixed income security with a common stock holder. The fixed income security holder, as we already know is entitled to a fixed interest every year, but the common stock holder ( which is also a security ) is not compulsory entitled to receive interests in a yearly basis, he will if the company proposes so in the annual general meeting else, they won’t receive interests. These are also issued by companies only. Depending on the companies requirement for an equity or a debt, the company issues either a equity stock or a debt instrument like a fixed income security. If an issuer misses a payment for a fixed income security, he is in default, and depending on the country of issue of security and the laws pertaining to the security, the payee can take legal action against the issuer of security.

Other types of securities are , variable-interest rate notes , inflation-indexed bonds these are variable rate debt instruments and are not fixed income. Some examples of fixed income securities are would be a 6% fixed-rate bond issued by the government where a $5000 investment would result in an interest payment of annual $300, this will continue till maturity, at which time the investor would receive the complete $5,000 back. The fixed income security generally receives less return than others as in it, the receiver receives fixed installments.



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