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CA Final · Advanced Financial Management · Securitization

In a securitization of Rs 60 crore of vehicle loans, Vahan Credit Ltd sells the pool to a trust SPV. The trust arranges a rating agency, a trustee, and an investment banker to place the certificates. Which function is performed by the trustee for the investors?

The trustee acts for the investors, monitoring that the SPV and servicer comply with the transaction documents and enforcing investor rights if something goes wrong. Collection of instalments belongs to the servicer, and rating of certificates is done by an independent rating agency.

  1. AActing on behalf of investors to oversee the SPV's compliance with the transaction documents and protect their interestsCorrect
  2. BCollecting monthly instalments from the vehicle loan borrowers
  3. CSelecting which loans the originator will include in the pool
  4. DAssigning the credit rating to the pass-through certificates

Explanation

The trustee represents investors' interests, monitors that the SPV and servicer follow the documents, and enforces rights on default. Collection is the servicer's job, rating is done by the rating agency, and pool selection is by the originator.

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