ASSET BACKED RISK || TRAINER ANIL MAURYA

Objective of the E-BOOK 

To avoid asset-backed risk

Key Learnings from the E-BOOK 

1. What is asset-backed risk?

Asset backed risk arises when an asset is used as a collateral or as security against some risk. This asset is sold, liquidated, and transferred to reimburse the risk amount.

When there are fluctuations in underlying securities, asset backed securities valuations will also be affected by them.

This will result in the following challenges for a business:

Prepayment risk

Repayment income stream

Change in interest rates

For example:

1. Share value increase

An investor checks asset backing while investing in your company.

If your asset backing is sound, he will invest money in your business; otherwise, he will withdraw even the invested amount.

So, your share value increases if you have asset backing.

2. Mining sector

Mines are the main asset of mining sector.

If there is no more exploration in the mines, the company will be over and the investor will withdraw the money from the business due to asset backed risk.  

This is the reason why the mining sector in Orissa is adversely affected nowadays.

3. Company specific

A balance sheet contains the assets and liabilities of a company.

On the liabilities side, capital infused by promoters and deposits made by the customers is mentioned.

On the assets side, physical assets and loans given by banks to the customers are mentioned.

When a customer approaches banks for loan and bank is not in a position to provide the loan, it converts their assets into special purpose vehicle and investors invest in them.

In this way, banks are able to cater their customer’s loan demand.

2. How to deal with asset-backed risk?

Compare asset related underlying securities with market conditions:

Shares

Stocks

Debentures

Bonds

You have to regularly monitor fluctuations in all these securities along with changes in the value of your assets to make your business ready to deal with these fluctuations.

You should expand the asset base through:

Oil & gas related wealth

Mining sector

Insuring and securing assets: You should take policies for depreciation in assets.

Control & monitoring: You should hire a dedicated team to control and monitor assets.

Key Outcomes of the Video

Hire a dedicated team to control and monitor asset

Compare asset related underlying securities with market conditions