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 difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. In economics, what is an index number?

    Economists often make comparisons between sets of data across time. For example, a macroeconomist might want to measure changes ... Read Full Answer >>
  3. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  4. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  5. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  6. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... 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. Retirement

    Can You Retire in Brazil with $200,000 of Savings?

    Brazil has a lot to offer the expat. The cost of living and healthcare are cheaper, and the pace is unhurried. But educate yourself about the taxes.
  7. Professionals

    Can Young Workers Rely on Social Security?

    Young savers have time on their hands to take advantage of many investment strategies, and they should because Social Security alone might not be enough.
  8. Budgeting

    How to Defray Long-Term Care Expenses

    Here's a handful of options on what you can do to defray long-term care expenses.
  9. Budgeting

    The True Cost of Home Caregiving

    Caring for eldery family in-home might be unavoidable, but most caregivers don't realize the true cost of doing so.
  10. Professionals

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.

You May Also Like

Hot Definitions
  1. Nuncupative Will

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

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

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
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!