Lend it, get paid, get it back

Watch what comes back.

Instead of locking ₹1,00,000 in a drawer, you **lend** it to a bank for three years. In return the bank pays you **8% a year**.

Each year ₹8,000 comes to you. At the end, the ₹1,00,000 comes back too. That is **fixed income**: you lend money, you're paid a fixed interest, and you get your money back on a set date.

Four words for every loan

Every fixed deposit and bond is described with the same four words.

• Principal ₹1,00,000 — The money you lend. You get it back at the end.
• Interest rate 8% a year — What the borrower pays you each year, as a share of the principal. For a bond this is also called the **coupon**.
• Interest payment ₹8,000 — The money you actually receive: rate × principal.
• Maturity 3 years — The date the loan ends and your principal is paid back.

**Remember:** you are the lender. The bank, government or company is the borrower.

Open a 5-year deposit

Tap through each year, or press Play.

Deposit ₹1,00,000 for **5 years** at **7% a year**, with interest paid out once a year.

Example deposit. Real rates change over time and differ between banks.

How often you're paid

Switch between the schedules.

Interest can be paid **yearly, half-yearly or quarterly**. Here, ₹1,00,000 at 8% a year.

Who you can lend to

Tap each borrower.

Fixed income works the same way whoever borrows. What changes is **how sure** you can be of getting paid.

**Remember:** a much higher interest rate usually means a riskier borrower.

Safe, but not risk-free

Tap each risk.

Fixed income is generally considered **low risk to your principal**. Low isn't zero. Three things can still hurt you.

The bond price is an example worked out for this case.

Check — Question 3 of 4

Put each one where it belongs.

What you now know

• Fixed income means lending your money for a fixed interest and getting it back at maturity.
• Principal, interest rate, interest payment and maturity describe every deposit and bond.
• Interest can be paid yearly, half-yearly or quarterly.
• You can lend to a bank, the government, a government agency or a company.
• A riskier borrower usually has to offer higher interest.
• Low risk isn't no risk: inflation, selling early and a borrower who can't pay can all hurt.