Definition: Fixed income is when a person gets a return or interest for the security or principal he has given to the borrower. When the period of loan gets over, the person gets the principal back.
Security means promising that I will return principal + interest after some amount of time. But promise can be easily broken due to market risks etc.
Period of return - Periods of fixed income are not fixed, they vary from 6 months to even 99 years.
Principal return - There are lots of risk prevailing in the industry. So what if company which borrowed money turns bankrupt. Now even the principal is not secured.
Note: That Fixed deposits are secured by Govt. of India per person.
Security means promising that I will return principal + interest after some amount of time. But promise can be easily broken due to market risks etc.
What is fixed about fixed income markets? OR why they are called fixed income markets ?
Fixed income markets offer "fixed return" at periodic intervals. But now this "fixed" word is kind of "legacy". Because think of what is fixed about fixed income??Period of return - Periods of fixed income are not fixed, they vary from 6 months to even 99 years.
Principal return - There are lots of risk prevailing in the industry. So what if company which borrowed money turns bankrupt. Now even the principal is not secured.
Note: That Fixed deposits are secured by Govt. of India per person.
Terminologies related to Fixed Income
- Issuer
- Maturity date
- Principal value
- Coupon dates
- Coupon
- Indentures
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