Most people do not have a comprehensive understanding of what is meant by fixed income products. Well, these are investment vehicles mostly based on fixed income investments. With income based investments, a fixed amount of income is provided in exchange for a lump sum investment for a specified period. Many people prefer indulging in these modes of investments since they are considered safe, certain and secure. Some of the preferred and most common types of fixed income products include;
Money market funds fall in the category of fixed income. These are mutual funds that invest in short-term corporate, government or municipal obligations. Due to their shorter durations, money market funds are able to hold the share price constant. Investors use money market funds as alternatives to bank money market accounts.
Also in the category of fixed income products, we have the fixed annuities. Usually, fixed annuities are issued by insurance companies. The insurance company pays the annuity owner a certain amount of interest on the investment for a specified period. The insurance company piles the annuity owner’s money and invests it in bonds or real estates. However, the insurance company has to guarantee the principal to the annuity owner against a loss.
Next, you cannot fail to mention bonds when dealing with fixed income products. Bonds are basically debt instruments issued by the government and corporations for a specified period with a promise to pay a certain amount of interest annually until maturity. Basically, bonds are the most typical form of an income based product. There are several types of bonds and they include the government bonds, municipal bonds, corporate bonds and foreign bonds to name just but a few. Many investor today associate bonds as a form of income investment.
Another common form of fixed type income products is the cash deposits (CDs). Cash deposits are bank products where an investor makes a lump sum deposit for a specified period and receives a specified amount of interest income. The interest earned by the cash deposits may either be paid in cash and alternatively, the income may be added to the principal for compounding. When the lump sum matures, the owner may opt to take the money out or roll it to another cash deposit.
Usually, almost all manners of income vehicles are good investment options since it makes it possible to diversify your investments. It is imperative to diversify your holdings and income investments provide a good balance for stocks, fixed income securities and stock mutual funds. Usually, having income based investments can help you reduce your investment risk portfolio.
Once you’ve invest in fixed securities, you’ll be very certain on the amount of income that you expect to receive from those investments. Therefore, it will be very easy for you to plan your tax strategy. In addition, some of the fixed income investments such as the acclaimed municipal bonds are free of federal taxes. In some cases, income investments may also be free of state income taxes as well. Therefore fixed income investments may help you make remarkable tax savings.