Fixed income securities represent the debt of domestic and international governments, corporations, banks, institutions, and municipalities. In essence, when you buy a fixed income security, you are lending money to the issuer for a specified period of time. In return, you expect the issuer to make regular interest payments (annually, semi-annually, quarterly, or monthly) and to pay back the face amount on the maturity date (the end of the specified period for the loan).
- Most fixed income securities offer a relatively safe and predictable income flow.
- The coupon (the amount of interest the issuer has agreed to pay) is set at issuance and remains the same until maturity; thus, the term "fixed income."
- The different fixed income vehicles in the market allow you to choose from a range of credit ratings and maturities (generally one day to 30 years, with some as long as 100 years). This diversity helps improve your management of risk.
- Fixed income securities provide the flexibility and liquidity needed to structure a portfolio tailored to your specific investment objective.