Difference between Securitisation and Factoring

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Raghunandana C K (Querist)
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25 January 2011 Dear Sir/Madam,

What is the meaning of Securitisation?How it is different from Factoring?

Kindly explain through examples

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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11 February 2011 Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities, while those backed by other types of receivables are asset-backed securities. The so-called lower risk of securitised instruments attracts a greater number of investors seeking to benefit in the process of taking many individual assets and repackaging them as Collateralized debt obligation.

With the claimed high degree of predictability in large groups and assumed predictability, investors usually prefer taking on risk, as a herd, rather than the total exposure inherent in direct investment in individual assets. Unlike general corporate debt, the credit quality of securitised debt is non-stationary due to changes in volatility that are time- and structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches will experience dramatic credit deterioration and loss.

FOR MORE INFO:-

https://www.scribd.com/doc/20901410/leasing-securitisation-and-factoring

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RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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11 February 2011 https://www.entrepreneur.com/encyclopedia/term/82044.html

Raghunandana C K

Raghunandana C K (Querist)
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11 February 2011 Dear Sir,

Thanks so much for reply

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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11 February 2011 thankyou dear author,

u can also put up ur queries in ca club india.

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