SDI/Bonds

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What are Securitized Debt Instruments (SDI) and Bonds?

SDI

Individual loans and debt seamlessly transform into Securitized Debt Instruments, streamlining income for investors. SDIs, essentially asset-backed securities, result from banks and financial institutions securitizing debt to enhance capital flow and reduce interest rates.

In this simplified process, various loan types converge into a single debt product, marked by the issuance of Pass-through Certificates (PTCs) to intrigued investors. This user-friendly approach allows investors to diversify portfolios, simultaneously facilitating funding for MSMEs in alignment with their requirements.

Originating institutions can efficiently pool diverse loan-backed assets for securitization. A Special Purpose Vehicle (SPV) acquires these assets and offers PTCs to investors on the open market. Two distinct types of securities emerge based on the underlying assets: Mortgage-Backed Securities (MBS) and Asset-Backed Securities (ABS). The pooled securities are categorized into tranches, and strategically marketed to investors based on risk levels or unique characteristics.

For investors, a tranche represents a set of related securities bundled together in a single transaction. These SDI tranches boast varying yields, risk levels, maturities, and repayment privileges, providing investors with an easy and nuanced investment approach.

 

Bonds

Corporate Bonds offer an investor-friendly avenue, where individuals lend money to the issuing company. The company commits to paying interest on the principal amount and usually returns the principal at maturity. Unlike stocks, bonds grant no equity ownership. This ease of understanding makes Corporate Bonds a secure option, providing a consistent income stream. Moreover, the company's profitability doesn't impact higher interest payments. Investors benefit from added security as companies are legally bound to meet interest and principal obligations, even during financial challenges. In case of bankruptcy, bond investors enjoy priority over shareholders, enhancing overall investor confidence.

Is SDI/Bonds a good Investment for Retail Investors?

SDI Bonds
Issued by SPVs after securitising the assets of the originator Issued by private and public companies
Backed by specific assets in the securitised pool No specific asset backing as it is a general obligation
Higher; the reward is based on the bond-issuing company Varying interest based on the underlying cash flow of assets
Steady but lower yield compared to equity Higher yield based on the asset risk
Customisable only according to the bond options provided by the issuer Customisable based on the investor's risk portfolio

FAQs

The investment amount is the sum of the face value of each SDI (“Clean Price”) and accrued interest.

the SDI is a tradable instrument held in dematerialised form, i.e., it offers a similar experience to buying, holding, and selling a bond. However, ability to find a buyer is not guaranteed by Grip and the investor could expect to hold the instruments until maturity

SDIs may be suitable for investors seeking diversification and income, but they are not risk-free. It's important for investors to assess their risk tolerance and financial goals before considering SDI investments.