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Covered Bonds are a hybrid between asset-backed securities/mortgage-backed securities and normal secured Covered Bonds. Mortgage lenders primarily use them and act as a tool for refinancing. Investors holding covered bonds have a right to a pool of issuer assets, which provides additional protection to investors.
These bonds obtain legislative support, making the instrument bankruptcy remote.
These bonds obtain bankruptcy remoteness through contractual features.
With respect to covered bonds, the cover pool and the liability for investors both fall on an issuer’s balance sheet. The increasing cover pool is secured and it remains constrained in case the issuer is forced to go through bankruptcy.
The covered bondholders have to face dual recourses – one of the issuers and the second one on the cover pool.
The cover pool may be dynamic or static, subject to the structure.
Since the primary exposure falls on the issuer, any prepayment risk is absorbed by the issuer.
Covered bond ratings are normally higher than the issuer’s rating. Internationally, covered bonds enjoy the prestige of a maximum of 6-notch better rating as compared to the issuer’s rating.
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There are many good reasons that make covered bonds attractive for investors. It is a secure investment option yielding good yield. The bondholders enjoy the advantage of a dual recourse.
Covered bonds is a safe investment option. It is relatively safer than asset-backed securities. The investment of investors is safeguarded even in the event the bond issuing institution is declared bankrupt.
The dual recourse feature makes covered bonds safer and right investment tool for risk averse investors. The issuer under Dual Recourse is required to do the payment to investors from its own cash flow.
Investment in covered bonds tend to provide good returns on investment. The rate of interest has ranged between 8.90 to 12.75%. For many investors, the Covered bonds interest rate is a key attraction.
The covered bond investors are classified into small private investors to large institutional ones. It mostly includes investors who are aiming to invest for long maturity periods and willing to take only low risk.
The investors in covered bonds include:
Covered bonds unlike other bond types is a good and secure option for safe investment. If you ae looking answer to your question what are covered bonds? The answer is simple. Covered bonds are also a debt security that is issued by mortgage institution or banks. The issued bond is collateralised against a pool of assets.
In case of covered bonds in India issuer failure, bond holders can claim the pool of assets at any point of time collateralised by the issuer at the time of issuing the covered bonds.
Why risk your hard-earned money when you have secure option available for the investment. Prefer bonds particularly covered bonds known for its great features and stable returns. The minimal risk and covered bonds interest rate attracts investors in India.
If you are a risk-averse person, covered bonds in India is the right choice. Browse through our product section for more information on the available bonds for trade. You can also consult our investment experts for better advice and guidance related to portfolio diversification.
BondsIndia in the country provides a secure online platform to the retail investors looking for investment in Bonds. At BondsIndia, you can get detailed answer to what are covered bonds, it types, covered bonds interest rates and make your independent decision.
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