Term of the Day - 8 January 2024

Today’s Term is “Fixed Income Security”.

Fixed Income Securities are financial instruments that provide investors with a predictable stream of income over a specified period. These securities are essentially loans made by investors to a government, corporation, or other entity in exchange for periodic interest payments and the return of the principal amount at maturity.

The “fixed income” comes from the predetermined interest rate attached to the security, making it distinct from variable-income investments like shares/stocks.

Fixed Income securities include bonds, certificates of deposit (CDs), and Government securities, among others. Bonds, for instance, are debt instruments where the issuer promises to pay periodic interest and return the principal at a specified maturity date. Governments and corporations commonly issue these instruments to raise capital for various purposes, such as funding projects or managing operational expenses.

Investors are attracted to fixed income securities for their relatively stable and predictable returns, making them a crucial component of diversified investment portfolios. The nature of these securities provides a level of safety and income certainty, making them particularly appealing to risk-averse investors seeking a steady cash flow while preserving their initial investment.