Fixed Income

Fixed income investments are financial assets like bonds, notes, bills and savings accounts where the issuer is contractually bound to pay the buyer a specified amount at certain times. Buyers of fixed income investment products make money when they receive interest or dividends that exceed inflation rates. For example, if you buy corporate bonds with an annual interest rate of 6%, but inflation is at 4%, fixed income investments are attractive because the total purchasing power of your fixed income investment would increase by 2%.

When fixed income investments like bonds, notes, bills and savings accounts are bought by individuals or organizations they are said to be “issued” or “sold.” An individual issuing fixed income will often do so in order to borrow money. When fixed income is issued in order to raise capital, it is called “debt financing.” The issuer will pay fixed income investors for the use of their money with interest. Bonds are fixed income investments that are paid back after a certain period of time, usually one year or more.

┬áMany fixed income investments are genuine fixed income products, but fixed income investors are not entitled to any fixed income product or fixed income investment that is deemed “callable.” A fixed amount of money becomes callable when the issuer has the right to return it to you before its due date. The fixed income investment can be called in at a fixed amount, fixed price, dollar price or fixed value. An issuer of fixed income can call in fixed income investments at any time, but is often required to pay the investor a premium for doing so. For example, if you buy fixed income products with an annual interest rate of 4%, and inflation is at 3%, your fixed amount of money will rise by 1%. However, if the issuer of fixed income products is able to call in fixed income investments at any time, you would be required to pay more than your initial fixed income investment because of the loss in purchasing power.

Investment managers of fixed income investment products and fixed income investors must calculate and follow laws and regulations surrounding fixed income product valuation and management. Fixed income investments like fixed income products and fixed income investments are governed by a set of rules referred to as an “investment framework.” One example of fixed income investment regulations is the U.S. Securities and Exchange Commission’s (SEC) fixed income regulations, which also apply to fixed price, fixed value and fixed term fixed income investment products.