Asset-backed security (ABS) is an umbrella term for a type of financial security which is backed up or collateralized by a pool of underlying assets, including illiquid assets like loans, leases, royalties, credit card debt, etc. For investors, it is an alternative to investing in corporate debts. ABS allows issuers to generate more cash, which in turn can be used for lending, opening up investing opportunities. Often a separate institution called a ‘special purpose vehicle’, is used for ABS securitization by bundling the assets into specified pools. Home equity loans, auto loans, student loans, credit card receivables are some types of ABS.
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