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What are the Different Types of Fixed Income Products?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 14 August 2019
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Fixed income products are investment vehicles that offer investors regular returns in the form of interest payments or any other periodical payments. The most common type of this investment is a bond, which allows the issuer to receive a loan from the investor in return for interest payments and an eventual return of the principal of the loan. Bonds come in many different forms, from reliable, low-paying investments like government bonds to riskier instruments like corporate bonds. Preferred stock is another way investors can benefit from fixed income products, as such stock pays investors regular dividend payments.

Individuals choose their investment vehicles depending on the amount of return they desire and the amount of risk they wish to incur. Those who choose the stock market are generally seeking out big returns, even as they know that the capital they invest could be lost with no return at all. On the other hand, those who choose fixed income products generally know what kind of return they can expect, and they can eliminate much of the risk involved with investing.

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Most people looking for fixed income products will generally choose some type of bond. Of these, the most reliable are those issued by a government or some government agency, either on a national or local level. It's highly unlikely that a government would default on repaying the principal of the bond, so investors can generally rest assured that their capital is safe with these investments. These investors also know that the interest rates they receive on the bonds will be low.

On the other hand, those desiring fixed income products with a little more profit potential can seek out corporate bonds. These bonds are offered by companies who are seeking capital from investors as a means of financing. The general rule with these bonds is that high promised returns mean that the corporation offering them runs a relatively high risk of defaulting. Investors who buy these bonds run the risk of losing their principal even as they gain the potential for significant returns.

There are some fixed income products for investors to try other than bonds. One common investment that can get an investor regular payments is preferred stock. Preferred stock generates regular payments for the investor in the form of dividends, which are periodical cash rewards to stockholders from the company issuing the stock. Buying preferred stock is generally for those only with significant capital to spend, and dividend payments are not guaranteed. Still, investors who find a company paying out regular dividends can see exponential growth from their initial investment.

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