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What Is 'Fixed Income': Investing

Fixed income refers to investments that generate regular, predictable income payments. Common fixed income investments include bonds from governments and corporations. Bonds are loans issued by entities to raise capital, where the issuer promises to repay the principal and pay regular interest. Fixed income investments tend to be less risky than equities but also offer lower potential returns. The fixed income market consists of various debt securities like bonds, which provide long-term capital financing.

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54 views2 pages

What Is 'Fixed Income': Investing

Fixed income refers to investments that generate regular, predictable income payments. Common fixed income investments include bonds from governments and corporations. Bonds are loans issued by entities to raise capital, where the issuer promises to repay the principal and pay regular interest. Fixed income investments tend to be less risky than equities but also offer lower potential returns. The fixed income market consists of various debt securities like bonds, which provide long-term capital financing.

Uploaded by

subash pradhan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What is 'Fixed Income'

Fixed income is a type of investing or budgeting style for which real return rates or periodic
income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters
and investors are often one and the same - typically retired individuals who rely on their
investments to provide a regular, stable income stream. This demographic tends to invest heavily
in fixed-income investments because of the reliable returns they offer.

What’s the Difference Between Fixed Income and Bond


Funds?
Investors tend to lump fixed income and bonds into the same group. But that is not always the
case. Fixed income is defined as any investment in which the issuer is obligated to make fixed
payments on a fixed schedule. Investors who purchase fixed income securities are typically
looking for higher yields and less volatility than equities. There are a multitude of various
securities that can be considered fixed income, outside of just bonds, which investors
traditionally equate with all fixed income.

Bonds and Other Fixed Income Securities


When a corporation wants to raise financing, it can do so by either issuing debt or equity. When
it issues debt in the form of bonds, it borrows money from a lender, and in return, makes a
contractual agreement to repay the principal as well as interest over the course of the loan. There
are many bond mutual funds that investors can choose from. For example, the Vanguard Total
Bond Market Index Fund (VBTLX) holds more than 5,000 domestic investment-grade bonds. It
invests about 30% in corporate bonds and 70% in U.S. government bonds of all maturities.

Equity Markets
Equity markets involved the purchase and sales of stocks, conducted on regular trading
exchanges. All stock markets, no matter the type, can be volatile and experience significant highs
and lows in regard to share values. Operating in equity markets involves taking on substantial
amounts of risk in the belief that much greater returns will be obtained. Success with equity
investing involves greater amounts of research and follow-up on investments than is required
with fixed income investments. Compared to bond portfolios, the holdings of equity portfolios
have a substantially higher turnover rate.

Equity investments symbolize interest of ownership in a corporation, while bonds are solely a
financial, interest-earning investment.

Fixed Income Markets


The fixed income market, more commonly referred to as the debt securities market or the bond
market, consists of bonds issued by the federal government, corporate bonds, municipal bonds
and mortgage debt instruments. The bond market is referred to as a capital market since it
provides the capital financing for long-term investments.

Debt security investments are generally less risky than equity investments. Correspondingly,
they typically offer lower potential returns. Debt security investments are traded over the counter
instead of being centrally traded on exchanges as stocks are.

Bonds are the most common form of debt security. Mortgage instruments are also part of this
category.

What is an 'Issuer'
An issuer is a legal entity that develops, registers and sells securities for the purpose of financing
its operations. Issuers may be domestic or foreign governments, corporations or investment
trusts. Issuers are legally responsible for the obligations of the issue and for reporting financial
conditions, material developments and any other operational activities as required by the
regulations of their jurisdictions. The most common types of securities issued are common and
preferred stocks, bonds, notes, debentures, bills and derivatives.

What is SWIFT?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a
messaging network that financial institutions use to securely transmit information and
instructions through a standardized system of codes.

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