Difference between equity security and fixed income security

Difference between equity security and fixed income security


Equity Securities

The most important equity security is common stock. Stock represents ownership interest in
a corporation. Equity securities may pay dividends from the company’s earnings, although
the company has no legal obligation to do so. Most companies do pay dividends, and most
companies try to increase these dividends on a regular basis.
Unlike fixed-income securities, equity securities represent an ownership interest in a corporation. These securities provide a residual claim—after payment of all obligations to fixed-income claims on the income and assets of a corporation

Fixed Income Securities

A fixed income security usually provides a known cash flow with no growth in the income stream. Bonds are the most important fixed income securities.A bond is a legal obligation to repay a loan’s principal and interest, but carries no obligation to pay more than this. Interest is the cost of borrowing money. Most preferred stocks pay a fixed annual dividend that does not change overtime consequently. For investment purposes, preferred stock is considered a fixed income security.