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Finance GlossaryFixed Income Securities
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Fixed Income Securities

Definition of Fixed Income Securities

Fixed Income Securities are issued in exchange for a loan and offer returns to investors in the form of a fixed interest rate. That’s why they are referred to as “fixed income” securities. The common types of fixed income securities are: Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

  • Certificates of Deposit
  • Corporate Bonds
  • Municipal Bonds
  • Treasury Bonds
  • Treasury Bills

Such securities fall under the category of debt instruments, which means they do not give investors equity shares or ownership in the company but only a promise of returning the principal with interest on maturity.

Often referred to as the coupon rate, the interest on a fixed income security is determined by the creditworthiness of the issuing company or entity as well as the latest interest rate set by the government.

Fixed income securities also confer seniority of claim to investors, which means that the investors who’ve helped finance the loan will receive their money first in the event a company is liquidated.

Related Terms

High Beta Stocks

High Beta stocks are shares that outperform the market in terms of returns but carry high risk. Such shares are called “High Beta” because of their significantly high Beta Coeffient value, which measures the correlation of a stock and the market. A Beta value on the high side typically indicates more volatility and the potential for higher returns.

American Option

An American Option allows the contract holder to exercise the right any time before or on the expiry date. American style options contracts are not available in India.

Capital Gains

A capital gain is a profit an investor or trader earns by selling shares, commodities, futures, options, currencies, and other assets. More literally, a profit is a gain on the capital that’s invested - hence the term capital gains.

Say someone buys a share for Rs. 1000 and sells it for Rs. 1100. The capital gains will be Rs. 100 in this case. The taxation of capital gains varies based on the asset type and the duration after which it was sold.

Book Entry Securities

Book entry securities are financial instruments like stocks, bonds, ETFs, and others whose ownership is recorded and tracked electronically. Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Book entries have made ownership certificates obsolete as they track who owns what electronically.

The trades are settled by the depository like NSDL or CSDL which sends the buyer a statement confirming ownership.

Expense Ratio

An expense ratio is a management fee that investors must pay for the services of the fund manager and their team. Mutual funds are handled by fund managers who take care of everyday stock analysis, buying & selling, and other activities. The expense ratio is a fee to compensate for this day-to-day management.

Irredeemable Debentures

Irredeemable debentures are debt instruments that can not be sold unless the company is sold or shuts up shop. Those who hold irredeemable debentures will be paid an interest as long as the company operates its business.



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