Tranches

Tranches are segments or slices of a financial product, like a loan or investment, designed to appeal to different risk levels or investment preferences. In a pooled investment, such as mortgage-backed securities, each tranche has its own risk, return, and maturity profile. More secure tranches offer lower returns but less risk, while riskier tranches offer higher potential returns. This structure allows investors to choose a tranche that aligns with their risk appetite and financial goals, and helps distribute the overall risk across multiple investors.