Does your debt portfolio need pass-through certificates?

livemint.com:

Here is how securitization helps reduce the risk of default on loans taken by a borrower. Such loans are repackaged into interest-bearing securities and sold to investors, thus spreading the risk thin. That is also what a pass-through certificate, or PTC, does. They are a type of securitization where the investors are paid interest but the final principal depends on the repayment by the borrower. It is considered risky because investors may not get the principal in full if the borrower defaults.

Historically, these PTCs have only been held by institutions like banks or mutual funds. However, some startups have now started offering them to individual investors. Wealth tech startup GripInvest, for instance, has sold PTCs and securitized debt instruments (SDIs) worth ₹175 crore to retail investors on its platform in the last 12 months.

The securitization market in India has experienced robust growth in the past few years. For instance, the annual aggregate for fiscal 2023 surpassed ₹1.8 trillion, very near the previous high of ₹1.9 trillion in fiscal 2019. This trend highlights PTCs’ growing popularity and their position as a reliable investment choice for debt investors in India.

Listed PTCs are governed by regulations framed by market regulator Securities and Exchanges Board of India (Sebi) in 2008 on the issue and listing of SDIs and security receipts. Additionally, pursuant to representations made by the industry, in June, Sebi has expanded the categories of instruments which can be distributed by online bond platform providers (OBPPs) to retail investors, and these now include SDIs, said Nikhil Aggarwal, founder & CEO, Grip.

The securitization structure

The originators—often banks, non-banking financial companies