Generally the term 'fixed-income' securities refers to an investment vehicle with a stated interest coupon or preferred dividend rate of income until the investment is sold, the stated par value is called by the issuer, or it is redeemed at the date of maturity (due date.) The interest coupon rate may be the same until maturity or it may change over time (in steps referred to as step coupons.)
Some of these investment vehicles are backed by Federal and State Governments and are some of the most stable investment options available. Fixed-income securities may be taxable, exempt from Federal income tax, exempt from State income tax, or "double-exempt" from both Federal and State income tax.
Since these securities have fixed income payments and a fixed amount of return of principal, they are usually considered less risky than common stocks which represent a share of the stockholders equity in a corporation. Fixed income securities have a priority claim in bankruptcy or liquidation and are paid off before common stock shareholders.
The risk level of a fixed income security varies with the credit quality of the issuer (credit risk) and the length of maturity.
Fixed income security rates of return may be less than total returns for equity investment vehicles which participate in the growth in the value of a company. Since 1920, the average total return for taxable fixed-income securities has been about 5% and for equity investments about 10%, although this may not be the case for future returns.
Some types of fixed-income securities are: Bonds, Notes, Treasury Bills, Certificates of Deposit, Commercial Paper, Preferred Stock with no conversion feature, Mortgage-backed securities, GNMA's, etc.