Fixed income

Fixed income refers to any type of investment under which the borrower/issuer is obliged to make payments of a fixed amount on a fixed schedule: for example, the borrower has to pay interest at a fixed rate once a year, and to repay the principal amount on maturity.

Fixed-income securities can be contrasted with equity securities, often referred to as stocks and shares, that create no obligation to pay dividends or any other form of income. In order for a company to grow its business, it often must raise money: to finance an acquisition, buy equipment or land or invest in new product development. The terms on which investors will finance the company will depend on the risk profile of the company. The company can give up equity by issuing stock, or can promise to pay regular interest and repay the principal on the loan (bonds or bank loans). Fixed-income securities also trade differently than equities. Whereas equities, such as common stock, trade on exchanges or other established trading venues, many fixed-income securities trade over-the-counter on a principal basis.