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Integral developments asset management – Fixed Income
Integral developments asset management – Fixed Income, 12/03/2019 -

Integral developments asset management –

Reviewed by Edward Moore

Updated Jun 25, 2019

What Is Fixed Income?

Fixed income is a type of investment security that pays investors fixed interest payments until its maturity date. At maturity, investors are repaid the principal amount they had invested. Government and corporate bonds are the most common types of fixed-income products. However, there are fixed income exchange-traded funds and mutual funds available.

Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products. Bonds traded over the counter (OTC) on the bond market and secondary market.

Fixed Income

Fixed Income Explained

Companies and governments issue debt securities to raise money to fund day-to-day operations and finance large projects. Fixed-income instruments pay investors a set interest rate return in exchange for investors lending their money. At the maturity date, investors are repaid the original amount they had invested—known as the principal.

For example, a company might issue a 5% bond with a $1,000 face or far pace that matures in five years. The investor buys the bond for $1,000 and will not be paid back until the end of the five-years. Over the course of the five years, the company pays interest payments—called coupon payments—based on a rate of 5% per year. As a result, the investor is paid $50 per year for five years. At the end of the five-years—called the maturity—the investor is repaid the $1,000 invested initially. Investors may also find fixed income investments that return coupon payments monthly, quarterly, or semi-annually.

Fixed-income securities are recommended for conservative investors seeking a diversified portfolio. The percentage of the portfolio dedicated to fixed income depends on the investor's investment style. There is also an opportunity to diversify the portfolio with a mix of fixed-income products and stocks creating a portfolio that might have 50% in fixed income products and 50% in stocks.

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