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Perpetual knowledge bank series: RMBS

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Residential Mortgage-Backed Securities or RMBS are a specific type of bond that is secured against a large pool of residential mortgages. While home loans are typically private transactions between a lender and an individual borrower that stay on the lender's balance sheet for the duration of the mortgage, an RMBS is a debt security that is typically acquired by institutional investors and financial institutions. While home lenders have to pay interest, RMBS investors earn interest.

RMBS are best thought of as a collection of interrelated bonds that are secured against a large pool of residential mortgages. Instead of just two or three home loans, RMBS notes typically group together hundreds if not thousands of home loans. The key feature of RMBS structures is ‘tranching’, which transforms the mortgage pool into a range of securities (the RMBS notes), each with a different risk and maturity profile. Interest on RMBS notes is paid in coupons similar to bonds. A coupon is an interest payment promised to the investor at regular intervals for the term of the bond. Payments of interest and principal − and allocations of losses − to the RMBS notes are made at regular intervals (typically monthly) on pre-set payment dates.

This analysis has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.

The information is believed to be accurate at the time of compilation and is provided in good faith. This document may contain information contributed by third parties. PIML and PSL do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this document are opinions of the author at the time of writing and do not constitute a recommendation to act. 

The product disclosure statement(PDS) for the Perpetual Diversified Income Fund issued by PIML, should be considered before deciding whether to acquire or hold units in the fund. The PDS and Target Market Determination can be obtained by calling 1800 022 033 or visiting our website http://www.perpetual.com.au

No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.