Trust Certificate

AAA

DEFINITION of 'Trust Certificate'

A bond or debt investment, usually in a public corporation, that is backed by other assets which serve a purpose similar to collateral. If the company experiences difficulty making payments, the assets may be seized or sold to help specific trust certificate holders recover a portion of their investment. The potential type of company assets used to create a trust certificate can vary, but most typically are other shares of company stock or physical equipment.

INVESTOPEDIA EXPLAINS 'Trust Certificate'

Investors holding trust certificates usually experience a higher level of safety than investors owning unsecured or uncollateralized bonds. But, they also typically earn a lower level of interest than those investors willing to take greater risks. While that may sound like an attractive balance for some investors, investing in trust certificates can be complex because it requires both an understanding of a company's overall financial situation and the nature of the asset that underlies the trust certificate.

Special caution should be taken when investing in trust certificates with an underlying asset that is the same company's stock. If the company runs into financial trouble, the asset backing the trust certificate can become as worthless as the trust certificate itself.

RELATED TERMS
  1. Incorporated Trustee

    A corporation, usually a trust company, which is named as the ...
  2. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  3. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated ...
  4. Collateral Trust Bond

    A bond that is secured by a financial asset - such as stock or ...
  5. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  6. Equipment Trust Certificate

    A debt instrument that allows a company to take possession of ...
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

    While both debit orders and standard orders represent recurring transactions that must be considered in bank reconciliations, ... Read Full Answer >>
  3. How are joint ventures regulated in the United States?

    Joint ventures are a very specific type of business arrangement. They can be organized in several different legal structures, ... Read Full Answer >>
  4. What is the difference between marginal utility and marginal value?

    Depending on the context, marginal utility and marginal value can describe the same thing. The key word for each is "marginal," ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How is cost basis calculated on an inherited asset?

    Typically, the cost basis on inherited assets is the fair market value as of the time of the decedent's death or actual transfer ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  2. Bonds & Fixed Income

    3 Bonds You May Have Never Heard Of

    These lesser-known bonds may give your portfolio a boost when other investments products fall short.
  3. Insurance

    Investing In Securitized Products

    Securitized assets are customizable and have a wide range of yields, making them an attractive asset class.
  4. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  5. Retirement

    Collateralized Debt Obligations: From Boon To Burden

    CDOs were to be Wall Street's boon - instead they went bust. Find out what went wrong.
  6. Home & Auto

    Before You Buy a Home for Your Child: Read This

    It is certainly generous. It can even be advantageous to both of you. But beware of the pitfalls.
  7. Retirement

    Retire in Costa Rica with $200,000 of Savings?

    It's quite doable in this Central American oasis.
  8. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  9. Investing

    Advising FAs: Explaining Long-term Care Insurance to Clients

    As our life spans are extended, our family structures change and medical care improves, the need for long-term care (LTC) will continue to increase.
  10. Retirement

    Top Reasons Not to Roll Over Your 401(k) to an IRA

    Five cases in which keeping your plan in place – or employing another non-IRA strategy – is the better move.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!