Debt security

A debt security, or as a fixed-income security, is an instrument with financial value that may be either be sold or purchased. It is one of the main types of securities, such as equity securities and derivative contracts.

Securities may have actual certificates, but at present, electronic certificates and trading are more common.

The holder of a debt instrument receives payment based on the principal value and interest on the date of maturity. Other rights and concessions, such as access to privileged information, may also be granted to the holder, depending on the conditions set for the specific security.

The existence of debt securities is essential for the international economy to function well. Businesses, especially new ones, often need to ask for loans from financial institutions in order to fund their operations. When a loan is granted, a document for the debt is produced. This then holds a certain value, depending on the amount that was borrowed plus interest.

Conservative investors are more likely to invest in debt securities than in equity securities, due to the reduced risk. Investors may also access more information and decide on which securities to invest in, since the classification and rating of debt securities involves payment cycles and risk information, among other things.

Preferred stock, debentures, government and corporate bonds, zero-coupon securities, and supranational bonds are all examples of debt securities.

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