Tranches

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 28, 2022

Define Tranches In Simple Terms

A tranche is a segment of a pooled collection of securities, typically debt vehicles, that are split up by risk, time to maturity, or other characteristics to be appealing to different investors.

The tranches of a larger asset pool are defined in transaction documentation and are assigned a different class of notes and different credit ratings.

What are Tranches In Finance?

An example of a financial product that may be divided into tranches is a mortgage back security, or MBS.

An MBS is made up of several mortgage pools with varying degrees of risk and times to maturity.

Therefore, the MBS may be divided into tranches in order to offer slices of the portfolio to different investors.

For example, the portfolio may have tranches with one year, two year, five year, and twenty year maturities, all with varying yields.

Example of Other Securities

Examples of other securities that may be split up into tranches are bonds, mortgages, loans, and insurance policies.

Tranches Definition FAQs

What is a Tranche?

A Tranche is a segment of a pooled collection of securities, typically debt vehicles, that are split up by risk, time to maturity, or other characteristics to be appealing to different investors.

What is an example of a Tranche?

An example of a financial product that may be divided into tranches is a mortgage-backed security or MBS.

How are Tranches practically defined?

The tranches of a larger asset pool are defined in transaction documentation and are assigned a different class of notes and different credit ratings.

What are examples of different Tranche portfolios?

For example, different portfolios may have tranches with one-year, two-year, five-year, and twenty-year maturities, all with varying yields.

What are some other securities that can be split into Tranches?

Examples of other securities that may be split up into tranches are bonds, mortgages, loans, and insurance policies.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

Find Advisor Near You