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Companies and governments issue debt securities to raise money to fund day-to-day operations and finance large projects. Fixed-income instruments pay investors a set interest rate return in exchange for investors lending their money. At the maturity date, investors are repaid the original amount they had invested—known as the principal.

For example, a company might issue a 5% bond with a $1,000 face or par value that matures in five years. The investor buys the bond for $1,000 and will not be paid back until the end of the five-years. Over the course of the five years, the company pays interest payments—called coupon payments—based on a rate of 5% per year. As a result, the investor is paid $50 per year for five years. At the end of the five-years—called the maturity—the investor is repaid the $1,000 invested initially. Investors may also find fixed income investments that return coupon payments monthly, quarterly, or semiannually.

Key Takeaways

• Fixed income is a type of security that pays investors fixed interest payments until its maturity date.


• Government and corporate bonds are the most common types of fixed-income products.


• In the event of a company's bankruptcy, fixed-income investors are paid before common stockholders.