Explain the features of Securitization.

The securitization has the following features: Creation of Financial Instruments - The process of securities can be viewed as process of creation of additional financial product of securities in market backed by collaterals. Bundling and Unbundling – When all the assets are combined in one pool it is bundling and when these are broken into instruments of fixed denomination it is unbundling. Tool of Risk Management - In case assets are securitized on non-recourse basis, then securitization process acts as a risk management tool as the risk of default is shifted from originator (of securities) to investor (in securities). Structured Finance - In the process of securitization, financial instruments are tailor structured to meet the risk return trade off profile of the investor, and hence, these securitized instruments are considered as best examples of structured finance. Trenching – Portfolio of different receivable or loan or asset are split into several parts based on risk and return they carry called 'Tranche'. Each Trench carries a different level of risk and return. Homogeneity - Under each tranche the securities issued are of homogenous nature and even meant for small investors who can afford to invest in small amounts.