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Fixed-Income Security
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What is a 'Fixed-Income Security'

A fixed-income security is an investment that provides a return in the form of
fixed periodic payments and the eventual return of principal at maturity.
Unlike a variable-income security, where payments change based on some
underlying measure such as short-term interest rates, the payments of a
fixed-income security are known in advance.

BREAKING DOWN 'Fixed-Income Security'

A fixed-income security, commonly referred to as a bond or money market
security, is a loan made by an investor to a government or corporate FORGET 4%, NOW EARN 8.65%* ON YOUR SAVINGS

borrower. The borrower, or issuer

issuer,, promises to pay a set amount of interest, SPONSORED BY FUNDS INDIA

called the coupon, on a predetermined basis until a set date. The issuer
returns the principal amount, also called the face or par value,
value, to the
investor on the maturity date.
date.

Examples of Fixed-Income Securities

Treasury bills are sold by the U.S. government. Corporate bonds are issued by companies. Municipal
bonds are issued by states, their agencies and subdivisions. A certificate of deposit (CD) is issued by
a bank. Preferred stock pays a dividend in a set dollar amount or percentage of share value on a
predetermined schedule. Take for example, a 5% fixed-rate government bond where a $1,000
investment results in an annual $50 payment until maturity when the investor receives the $1,000
back. Generally, these types of assets offer a lower return on investment because they guarantee
income.

Benefits of Fixed Income

Fixed-income securities generate regular income, reduce overall risk and protect against volatility of
a portfolio. The securities can appreciate in value and offer more stability of principal than other
investments. Corporate bonds are more likely than other corporate investments to be repaid if a
company declares bankruptcy
bankruptcy..

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Risks of Fixed-Income Securities
The generally low risk of investing in fixed-income securities results in typically low returns and slow
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capital appreciation.
appreciation. A principal balance may be tied up for a long time, resulting in lost income by
not investing in other securities. Interest rate fluctuations cause bond prices to change, potentially
resulting in lost income by having money locked into a lower-interest bond and not being able to
invest in a higher-interest bond. Bonds issued by a high-risk company may not be repaid, resulting in
loss of principal and interest. Investing in international bonds may result in losses due to exchange
rate fluctuations. For example, if a U.S. investor owns bonds denominated in euros, and the euro
decreases in value relative to the U.S. dollar, the investors returns are lowered.

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Fixed Income
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Video Definition

ExplainingFixedIncome

Fixed income is a type of investing or budgeting style for which real return rates or periodic income is
NEXT at
received UP:
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regular INCOME
intervals and at reasonably predictable levels. Fixed-income investors are
typically retired individuals who rely on their investments to provide a regular, stable income
stream. This Security
Fixed-Income demographic tends to Topics
invest heavily in fixed-income
Reference investments
Advisors becauseSimulator
Markets of the
reliable returns they offer.
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Fixed Income DOWN 'Fixed Income'
BREAKING

Fixed-income
investors who live on set amounts of periodically paid income face the risk of inflation
eroding their spending
Interest Rate Risk
power. The most common type of fixed-income security is a bond. Bonds are
issued by federal governments, local municipalities and major corporations. Fixed-income securities
are recommended for investors seeking a diverse portfolio; however, the percentage of the portfolio
Bond
dedicated to fixed income depends on your own personal investment style. style. There is also an
opportunity to diversify the fixed-income component of a portfolio. For instance, you might have a
portfolio with 50% in investment-grade bonds, 20% in Treasurys, 10% in international bonds and the
Maturity Date
remaining 20% in high-yield bonds.
bonds. Riskier fixed-income products, such as junk bonds and longer-
dated products, should comprise a lower percentage of your overall portfolio.
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Fixed Income

Interest Rate Risk

Bond

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Debt Security

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