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The #loans we take can be bought & sold. Did you know this? 
Let's talk about what does it exactly mean to #buy or #sell a loan, why financial institutions do this, what's #debtfunds, and why invest in them!
Pull up a chair and let's get into the weeds.
Let's talk about what does it exactly mean to #buy or #sell a loan, why financial institutions do this, what's #debtfunds, and why invest in them!
Pull up a chair and let's get into the weeds.
Table of contents:
What does it mean to buy/sell a #loan & how does it work?
What are #debt_securities or debt #bonds?
Who should #invest in #debtfunds & why?
Hope this will give you a high level understanding of all these things.
Let's get rolling! 
What does it mean to buy/sell a #loan & how does it work?What are #debt_securities or debt #bonds?Who should #invest in #debtfunds & why?Hope this will give you a high level understanding of all these things.
Let's get rolling!
1/ What does it mean to buy/sell a loan?
When people need capital, they take loans, in return, they pay #interset to the bank or the institution. But what happens when the #lending institution needs capital? They obviously can't demand us to pay off the loan right away, right?
When people need capital, they take loans, in return, they pay #interset to the bank or the institution. But what happens when the #lending institution needs capital? They obviously can't demand us to pay off the loan right away, right?
2/ It's a common practice for lending institutions to #sell loans to another institution. Yes, you heard it right. Loans have interests which makes them #financial assets known as #debt_securities which can be bought/sold. Let's take an example 
3/ I take a loan of $10,000. That loan is a liability to me, but it's an asset to the lending institution. So when the institution needs capital instantly, they sell it to another institution for a fair price (often less). Now I have to make the repayments to the new institution.
4/ It’s entirely legal for them to do it. But, they provide a warning that my loan will be serviced by a diff company. When we obtain a loan, we agree, usually in writing, to repay it. That agreement has a #contract that the right to receive the payments, can be #bought & #sold.
5/ But in most cases, #institutions don't just sell loans 1 or 2 at a time, they bundle a bunch of #loans together with similar risk levels which is often known as #bonds & these bonds are sold to investors who make #profit from the #interest payments. 
6/ Every debt security has a #credit rating that helps #investors understand the possibility of default or the risks involved. High quality #debt security offers predictable & #fixed return while the other offers an opportunity to earn #higher returns. 
7/ Generally, debt funds are less risky than #equity funds as it invests in fixed-interest generating #securities which implies a stable return. While equity funds are highly volatile & depends on #stock market. So #investors with lower risk tolerance find debt funds more ideal.
