Examples of fixed income securities are government bonds, sovereign bonds, municipal bonds, corporate bonds and preference shares. These securities are usually offered to the public so that the institution in question can get money to finance capital expenditures. People who subscribe to bonds will paid a fixed amount of money each and every year.
Preference shares are normally given to the public when a company is first listed in the stock exchange. Any company that is listed in a stock exchange is a viable enterprise because the financial worthiness of a business is usually examined before the business can participate in stock market. In any speculative market, there are usually blue chip companies. Shares of such companies are expensive to purchase but are highly profitable. One can buy shares during Initial Public Offering from the company or during a normal trading day from a stock broker.
So as to be entitled to fixed income, cumulative preference stock should be one’s ultimate choice. Dividends are paid on such a stock every year. If dividends are not paid due to an issue or two, there are carried forward. This means they will be settled at a latter month. This is not the case when it comes to non-cumulative preferred shares and ordinary shares. Holders of this kind of equity do not usually have voting rights.
Government bonds are issued by a government in local currency. Only citizens of the issuing country are allowed to participate in such bonds. However, sovereign bonds are issued in foreign currency therefore foreigners can participate. Most countries issue sovereign bonds in US dollars. This is due to the fact that the dollar is the denomination that is normally used in international trade.
A government will offer bonds for different reasons. One of the reasons may be so as to get money to finance the construction of roads or the improvement of nation wide infrastructure. Constructing roads is a very costly exercise therefore there is need for external financing.
Municipal bonds are just as good as other kinds of bonds. This is because income from them is guaranteed. As a matter of fact, an investor should have bonds in his portfolio. An investment portfolio should be as diverse as possible so that risk is minimized.
A good portion of the income of local authorities is obtained by issuing securities having fixed interest rates. Amounts obtained from sell of securities will be used to renovate municipal buildings, modernize local authority infrastructure and purchase capital equipments. Revenues of most municipals are stable therefore subscribing to financial instruments of these institutions is a risk free affair. Actually, zero percent risk is involved when dealing with financial instruments in this niche. This is because, when an institution like a government or a company fails to pay interest, government assets or company assets will be seized by the courts and sold so as to pay creditors.
There are many kinds of fixed income securities. Government bonds and preference shares are popular with most people. Governments normally issue guaranteed interest financial instruments in local currency and foreign currency.