What is Fixed Income Securities: Definition & Meaning Explained

Definition of Fixed Income Securities

Fixed Income Securities are issued in exchange for a loan and offer returns to investors in the form of a fixed interest rate. That’s why they are referred to as “fixed income” securities. The common types of fixed income securities are: Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

Certificates of Deposit
Corporate Bonds
Municipal Bonds
Treasury Bonds
Treasury Bills

Such securities fall under the category of debt instruments, which means they do not give investors equity shares or ownership in the company but only a promise of returning the principal with interest on maturity.

Often referred to as the coupon rate, the interest on a fixed income security is determined by the creditworthiness of the issuing company or entity as well as the latest interest rate set by the government.

Fixed income securities also confer seniority of claim to investors, which means that the investors who’ve helped finance the loan will receive their money first in the event a company is liquidated.

Bonds

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:

SOV: Only for government bonds
AAA: Highest
AA+: High-medium
A+: Upper-medium
BBB+: Lower-medium
BB+: Speculative
B+: Highlight speculative
CCC+: Risky
CC: Extremely risky

Balance Sheet

A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.

These are some of the key components of a balance sheet:

Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets

Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets

Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities

Long Term liabilities : Long-term loans, bonds, and others

Shareholders’ equity : Paid-in capital and retained earnings

Government Bonds

Government bonds are debt instruments that allow the central banks to raise capital to finance operations. The types of government bonds are:

Treasury Bills
Fixed Rate Bonds
Floating Rate Bonds
State Development Loans
Sovereign Gold Bonds
Zero Coupon Bonds

Every government bond has a credit rating that’s based on the financial health of the country. The government is the apex institution of any country, which is why their credit rating is the high.

In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.

Book Building

Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.

These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.

*All securities mentioned on this website are exemplary and not recommendatory.

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Fixed Income Securities

Fixed Income Securities

Definition of Fixed Income Securities

Capital Growth

Bonds

Balance Sheet

Forex Futures Trading

Government Bonds

Book Building

Invest & Trade with a Trading
Platform That's #MadeForTrade

Fixed Income Securities

Fixed Income Securities

Definition of Fixed Income Securities

Capital Growth

Bonds

Balance Sheet

Forex Futures Trading

Government Bonds

Book Building

Invest & Trade with a Trading Platform That's #MadeForTrade

Invest & Trade with a Trading
Platform That's #MadeForTrade