Fixed return instruments
A fixed return instrument is one which provides you with fixed or same amount of return or interest every month or every year or whatever the period decided and returns the initial principal amount at the end of maturity period.
While a variable return instrument provides variable returns periodically. If you are a risk averse person or a retired person then you are good to invest in fixed return instruments.
Safe Investments
Fixed return instruments are safe, regular and so the interest rate will be low compared to variable return schemes. In India national saving certificate, post office monthly income scheme, public provident fund, government securities…… offer fixed returns.
Understanding through example
If you have invested in a fixed return scheme with a principal of INR 1000 for a period of 1 year and the interest rate on return is 10%. So, periodically you will receive 100rs every month and upon completion of your maturity period you will get back your principal amount 1000rs.
Of course it is a zero risk investment but you have to bear credit default by some private and unrecognised entities which woo customers with high returns. A rising inflationary trend may offset your return on investment so; it is advisable to invest in schemes which offer low maturity period.
Fixed return investments are a sure way to plan your future through growth of funds. They may not offer the high return of non-fixed return investments, but at least it gives you an idea of what kind of profit you can make so you can plan for your future accordingly. It is a lot less risky than having an interest rate on your money that changes frequently when you are saing from something specific.
It feels like to start a fixed return investment for the risk free returns. If one is made, we can sit back comfortably on the couch for returns. This is a best plan that banks can offer to someone who never wants to take risk. The example was too nice, well done author!
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