Inflation-Indexed Security

AAA

DEFINITION of 'Inflation-Indexed Security'

A security that guarantees a return higher than the rate of inflation if it is held to maturity. Inflation-indexed securities link their capital appreciation, or coupon payments, to inflation rates. Investors seeking safe returns with little to no risk will often hold inflation-indexed securities.


Also known as a "real return" securities.

INVESTOPEDIA EXPLAINS 'Inflation-Indexed Security'

In other words, an inflation-indexed security guarantees a real return. These real return securities usually come in the form of a bond or note, but may also come in other forms. Since these types of securities offer investors a very high level of safety, the coupons attached to such securities are typically lower than notes with a higher level of risk. There is always a risk-reward tradeoff for investors to balance.

RELATED TERMS
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  2. Treasury Inflation Protected Securities ...

    A treasury security that is indexed to inflation in order to ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Inflationary Psychology

    A state of mind that leads consumers to spend more quickly in ...
  5. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
  6. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise ...
Related Articles
  1. Bonds & Fixed Income

    Curbing The Effects Of Inflation

    Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs.
  2. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  3. Options & Futures

    Introduction To Inflation-Protected Securities

    Inflation is an enemy to investors - except to those who invest in IPS, which guarantee a real rate of return with no credit risk.
  4. Active Trading

    Shield Your Portfolio From Inflation For Real Returns

    Inflation-protected securities are part of the equation, but they're not a perfect solution.
  5. Retirement

    Hedge Your Bets With Inflation-Linked Bonds

    ILBs such as TIPS and I-Bonds allow investors to curb the corrosive effects of inflation and increase portfolio diversification.
  6. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  7. Mutual Funds & ETFs

    GLD vs. IAU: Which Gold ETF is Better?

    Looking to play gold with ETFs? A look at SPDR Gold Trust Shares (GLD) versus iShs Gold Trust Trust Units (IAU).
  8. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  9. Economics

    What Do You Need To Know About Inflation?

    When it comes to inflation, there is no shortage of opinions: one side argues the Fed should raise rates, and the opposition says the Fed should stay put.
  10. Economics

    What’s Missing For A Turnaround In Brazil?

    Today, many investors have written off Brazil following several years of poor performance, decelerating growth and chronically high inflation.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center