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Fixed income is any investment on which the lender is due to receive a timely payment in the form of interest and the full amount of the money lent on maturity. The term fixed income also refers to the income of an individual which has not seen a visible change over time. It can also include sources of fixed income like bonds, preferred stocks or pensions. All of these bonds, stocks and the like are financial debt instruments and are called fixed income securities. Such fixed income securities provide a number of benefits to the lender – they’re reliable and predictable sources of income, the investments are safe as they’re would remain unaffected by changing market trends and fluctuations. However, there are certain risks that need to be taken into considerations with regard to fixed income securities. Some such risks are inflation risk, interest rate risk, currency risk, default risk, reinvestment risk and liquidity risk. There are several types of fixed income derivatives - options, swaps, futures contracts and forward contracts. Out of these credit default swaps, interest rate swaps, inflation swaps, bond futures, interest rate futures, forward rate agreements are the most popular.
Bonds are financial management instruments that are most often used for raising money with an eye for fixed income or timely returns. Binds are traded in the bond market or fixed income market. The issuance of bonds is done on the Primary Market while the selling and trade of bonds is done on the Secondary Market. The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures. There are five broad categories for bond markets, they are – corporate, government & agency, municipal mortgage-backed, asset-backed, and collateralized debt obligation, funding. Bond markets are participated in by a number of persons and financial entities such as institutional, investors, governments, traders and individuals.
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