Asset Backed Securities

Posted in Finance, Accounting and Economics Terms, Total Reads: 1363
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Definition: Asset Backed Securities

An asset backed security is one which has its value through an underlying asset. It is generally a specific pool of assets which are again sold in shares through a process known as securitization.

The major advantage of an asset backed security is that it reduces the risk because the pool of assets is now sold in fractions to a diversified pool of investors. The underlying asset in such securities is generally an illiquid asset ranging from a physical asset such as a property to financial assets such as mortgage loans, credit card loans etc.

The process of securitization is generally executed through a separate legal entity created or a special purpose vehicle (SPV) created specifically for this purpose.

 

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