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What Does Fixed Income Mean?


A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often one and the same - typically retired individuals who rely on their investments to provide a regular, stable income stream. This demographic tends to invest heavily in fixed-income investments because of the reliable returns they offer. 

The principal features of a bond are:

 
  • A bond is an agreement between the Issuer and the investor.
  • In most cases, the loan is for a fixed term, so that there is a specified repayment date.
  • There is also (in most cases) a fixed interest rate or coupon.
  • In other words, a bond is a package of cash flows, which are received by the bondholder at future dates until repayment.
  • The price of a package of future cash flows is its “Net Present Value”.
  • This value will fluctuate with changes in market interest rates.
  • Therefore, during its life the price of the bond will fluctuate, and will move towards 100 (“par”) on maturity date.
 

Types of Bonds

 

Bonds can be broadly classified into:

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