What is FIS (Fixed Income Security)?
Fixed Income Security (FIS) Definition
The most popular use of a fixed income security is in the form of a bond, but other uses of a fixed income security also exist in the forms of CD’s, money markets and preferred shares.
Why Fixed Income Securities?
Corporations and institutions of the government, in an effort to raise money for new projects or the maintenance of old ones will allow interested buyers to purchase bonds.
In other words, these large public entities by selling bonds, are asking individual private citizens to loan them small sums of money.
Promises of a Bond
When purchased, a bond comes with two promises.
The first is that the issuer of the bond will repay the interest on the loan at a fixed rate, at fixed times of year.
The second, is that after the bond has matured that the bond issuer will have repaid the amount of money originally invested by the purchaser of the bond.
Interest Rate on Bonds
The rate at which the interest is paid on a bond, varies from bond to bond.
Bonds issued by large, stable corporations or government institutions typically have very low yields.
But they make up for it, by being particularly reliable when it comes to paying interest and the matured principle.
The Purpose of Investing in Fixed Income Security
From the investor’s point of view, the purpose of investing in a fixed-income security is to diversify one’s portfolio in a safe way.
Since fixed-income securities’ rate of return are more stable than other investments, albeit with no potential for growth, investors will turn to securities during tough economic times or in an attempt to create steady income because the fixed rate of return set by large corporations or the government are so dependable.