What is Fixed Income Securities: Meaning and Types

Fixed-income securities act as a steady companion to build your long-term wealth. You can use this investment option based on your future needs and financial goals.

To make smart investment decisions, you must know the different types, pros, cons and more. Read on to learn all about fixed-income securities and build your long-term wealth.

Fixed-income Securities: A Guide

• Fixed-income securities are debt instruments issued by well-known corporate and government organisations. 
• You get guaranteed and fixed returns on these investments, making them an excellent option for conservative investors.
• The final value of the security at maturity is determined before its issuance and is disclosed to you right at the start of your journey. 

Fixed-Income Securities Types 

• Bank Deposits: Fixed deposits are safe savings schemes that pay a fixed interest rate, but you can’t withdraw without paying a penalty before maturity.
• Exchange-Traded Funds (ETFs): These funds invest in bonds and other debt instruments and provide stable and regular returns.
• Debt Mutual Funds: These funds invest in bonds and other fixed-income securities, offering higher returns than savings accounts or fixed deposits.
• Money Market Instruments: These include short-term investments with maturity of less than 1 year, like treasury bills and certificates of deposit, offering fixed returns.
• Bonds: These are issued by companies for day-to-day operations, which pay back fixed interest over time.
• Public Provident Fund (PPF): A safe government-backed investment with tax benefits and higher interest than regular savings accounts.

Choosing Fixed-income Securities

Here is a brief glimpse of why you may want to choose or avoid these investment avenues:

Pros	Cons
Offer steady income throughout the duration Relatively lower risk since they are backed by the government, corporates or banks Higher likelihood of receiving payment in the event of bankruptcy Including these in a portfolio helps balance risk and makes it more resilient to market fluctuations	These investment options come with credit risks They have lower rates rather than other investment options that may be riskier The value of securities may decrease if interest rates increase Certain instruments with longer durations or lower credit quality, may be challenging to sell quickly without a loss in value

How to Invest in Fixed-income Securities

Here are some ways through which you can invest:

• Banks and NBFCs:  You can book deposits for various amounts and durations, as per your preferences. Apart from visiting a branch, you can invest in FDs through websites and mobile apps. 
• Corporate Bonds: You can buy bonds directly from corporations through their initial offerings. You can also trade them on secondary market exchanges.
• Government Securities (G-Secs): You can purchase G-Secs directly through platforms like the Reserve Bank of India (RBI)’s Retail Direct.
• Trading Platforms (Secondary Market): Using various trading platforms, you can buy bonds from the secondary market.

Things To Keep In Mind

Before going ahead, you must understand these pointers:

• Capital Gains Tax: Figure out how these investment returns are taxed. Usually, you will need to pay taxes based on your tax slab. 
• Management and Strategy: To ensure you get the best returns from these instruments, check the fund manager’s experience. In addition, see when you need the returns. Consider ETFs for the long term and debt funds for the short term. 
• Liquidity: These funds usually have high liquidity, helping you meet your requirements whenever they arise.

FAQs on Fixed-income Securities

What is fixed income?

Fixed income refers to gains that you can get from investments that are predictable and can be calculated beforehand. This means that the risk exposure is less, which usually means that your payout may not be as high as when you invest in risker options. 

Are bonds fixed-income securities?

Yes, bonds are a common part of fixed-income securities. They are issued by companies or governments to finance daily operations or develop infrastructure. Since fixed-income bonds are a liability, they have to be repaid by the issuer.

What is the duration of a fixed-income investment?

The duration of a fixed-income investment can vary depending on the type of investment you go ahead with. You can choose an investment option that matches with your liquidity requirements and goals.