What is Fixed Income Securities: Definition & Meaning Explained

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.

Abridged Prospectus

An abridged prospectus is a short version of a company prospectus. As per SEBI norms, a company looking to offer equity or debt to investors must file a prospectus.

This document contains crucial details that can help investors make investment decisions. But a regular prospectus is lengthy.

That’s why Section 2(1) of the Companies Act of 2013 came into effect. It directed companies to publish an abridged or shorter version of their prospectus.

Benchmark

A benchmark is a standard used by investors to compare the performance of a stock, commodity, or other securities.

Stock indices like Nifty 50, Sensex, Nifty Bank, and others are often used as benchmarks to evaluate the performance of one or more stocks.

The onset of a bear market is generally in tandem with poor economic conditions.

Benchmarks are not just used for evaluating markets or securities, they can also be used to assess the performance of an investor or wealth manager. Here are some outcomes if the returns are:

Greater than benchmark: the asset is doing considerably well (great)
Same as benchmark: the asset is moving with the market (okay)
Less than benchmark: the asset is performing poorly (bad)

Capital Gains Exemption

Capital gains exemption is the tax break that a government offers on profits earned by selling assets. Generally, an investor must pay a tax on the short-term capital gains or long-term capital gains earned.

But in certain cases, the government allows investors to offset taxes. For example, if an investor sells property and reinvests the entire amount back again into another property, they can avail of capital gains exemption.

Equity Shares

Equity shares is a term used to describe stock of a company that’s issued via an Initial Public Offer (IPO), already issued and traded on the stock market, or freshly available through a Follow on Public Offer (FPO).

For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.

Ichimoku Cloud

Ichimoku Cloud is a group of technical indicators that’s used to understand trends, momentum, support, and resistance by calculating averages. Furthermore, the Ichimoku Cloud indicator is made up of two components:

TenkanSen: The short-term indicator
KijunSen: The long-term indicator

There’s a cloud that’s formed as a result of plotting the averages and using the components on a chart. One glance at this cloud can tell you multiple things like:

Uptrend: If the price is above the cloud
Downtrend: If the price is below the cloud
Neutral: If the price is in the cloud

Moreover, if the cloud and the price are moving in the same direction, there’s much more confidence in the trend that’s forming. In fact, it’s a trading signal.

Fixed Income Securities