The most common form of debentures are U.S. The purchaser of a debenture must rely solely on the promise of the borrower to repay the debt. In other words, there is no physical collateral to ensure the borrower complies with the terms of the indenture.
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The terms of the loan - maturity date, interest rate, timing of interest payments, and physical collateral securing payment - are detailed in a legal contract called an indenture accompanying the bond issue. A bond usually refers to the formal issue of debt by the borrower to a set of lenders - the buyers of the bonds.
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The term “fixed-income security” can apply to a variety of different debt instruments including: In simple language, it is an IOU with documented, defined features that detail the amount borrowed, the amount and timing of interest payments to be made by the borrower to the lender, and the remedies available to the lender if the borrower defaults.Īlthough debt securities do not transfer ownership interests (equity) in a company, they establish a priority of the lender’s claim for repayment in the event of the borrower’s default or bankruptcy. What Are Fixed-Income Securities?įixed-income securities are debt securities issued by a government or corporation in return for funding to finance its operations. One of the best ways to do so is to practice diversification using fixed-income securities.īy maintaining a mix of stocks and fixed-income securities, investors have the ability to enjoy upsized gains when market conditions are positive and benefit from hedged bets when markets turn negative. With the bears and bulls constantly at odds, investors look for ways to shield their investment portfolios from the significant declines that result from this volatility.
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As a result, the stock market is known for tremendous fluctuations in value, with gains when bulls take the lead and declines when bears take hold. The stock market is a constant battle between the bulls who believe valuations will rise and the bears who believe valuations will fall.