What Is a Fixed Income Trust?

Fixed income trust products refer to trust products issued by trust companies with a fixed rate of return and term. The financier raises funds from investors through the trust company, and guarantees the return of principal and income by maturity (pledge) of assets (equity) to the trust company and third-party guarantees.

Fixed income trust products

Right!

Fixed income trust products refer to trust products issued by trust companies with a fixed rate of return and term. The financier raises funds from investors through the trust company, and guarantees the return of principal and income by maturity (pledge) of assets (equity) to the trust company and third-party guarantees.

Chinese name

Fixed income trust products

Income

Any investment is risky

Classification

Loans, equity investments, etc.

Field

Real estate, business enterprises, etc.

trustee

Trust companies issuing trust products

guarantor

Third party guarantee

Fixed income trust products refer to trust products issued by trust companies with a fixed rate of return and term. The financier raises funds from investors through the trust company, and guarantees the return of principal and income by maturity (pledge) of assets (equity) to the trust company and third-party guarantees.

1.Does the fixed income trust really protect the capital and guarantee the income?

Any investment has risks, and fixed income trusts have not promised to maintain capital or guarantee returns. However, fixed income trust products have a strict and effective risk prevention mechanism, which minimizes investment risk through asset mortgages, equity pledges, guarantee companies, and joint and several liability guarantees for individuals.

2.What types of fixed income trust products are divided into?

Generally speaking, fixed income trust products are divided into loans, equity investment, equity investment, portfolio investment and a few others.

Loan-type trusts: completed by issuing loans to financing enterprises.

Equity investment trust: Invest in equity, through equity transfer and capital increase to the company, holding part or all of the company's equity.

Equity investment trust: The trust company obtains specific equity (generally equity or debt) and related subordinate powers. After the trustee holds the underlying equity and obtains settlement in accordance with relevant agreements, the value of the trust plan's assets will be realized.

Portfolio investment trust: A collective fund trust that invests in a single or multiple projects. Investment methods include, but are not limited to, loans, equity investments, equity investments, and so on.

3.In what areas does a fixed income trust invest?

Generally invest in infrastructure, real estate, industrial and commercial enterprises. Portfolio investment trusts also invest in low-risk bond markets and money markets.

4.What is a trustee?

Refers to trust companies that issue trust products.

5.What is a guarantor?

When the trustee invests the trust funds in a certain project, a third party is required to guarantee the income of the investment. There is a joint liability for this project, and the third party is the guarantor. Generally speaking, the guarantor can be a company or a natural person, it can be the parent company of the project initiator, the actual controller, or a special third-party guarantee agency, etc.

6.What is mortgage and pledge?

When guaranteeing an investment project, the guarantor will collateralize and pledge the equity and debt held by the guarantor to the trustee. The realizable value of the collateral and pledge must be greater than the trustee's investment amount and expected return amount. The trustee may realise the mortgage and pledged property to guarantee the income.

7.What are the investment thresholds for fixed income trust products?

The purchase threshold of fixed income trusts is similar to that of Sunshine Private Placement. It is only issued to qualified institutional and individual investors through private placement. It is not for sale in public places and there is no public promotion. At the same time, the starting point is relatively high, each investment is generally not less than 1 million, and investors under a single trust of less than 3 million are subject to a limit of 50 places.

8.What are the costs for purchasing fixed income trust products?

At the investor level, fixed income trust products generally have no subscription fees or fixed management fees. The actual income of a fixed income trust in operation may exceed the expected income. The trust company only uses the excess as a floating management fee. The floating management fee does not affect investors' income.

9.How liquid is a fixed income trust?

According to the "Administrative Measures for the Trust Company Collective Fund Trust Scheme", the term of a collective trust established by a trust company shall not be less than one year, and there is no such restriction for a single type of project. At present, the term of trust products on the market is mostly 1-3 years. It is more suitable for investment and wealth management customers who expect to obtain stable income through long-term investment. The fixed income trust contract stipulates that during the life of the trust, the trust cannot be redeemed, and the principal and income of the trust can only be obtained after the life of the trust expires.

10. Income distribution and exit of fixed income trust products

Fixed income trust products have no net value during the life of the trust. Generally, at the end of each trust year, after deducting related taxes, the income obtained by the trust will be directly distributed to investors in cash. After all investment projects have successfully obtained returns or the trust duration expires, the trust's unallocated income and trust principal will be distributed to investors.

11.Who does the investor enter into a trust contract with?

No matter what channel the trust products are sold to, the trust contract is finally signed with the trust company.

12.What is the difference between a fixed income trust and a bank wealth management product?

There will be some differences in the starting amount, product term, and expected return of bank wealth management products and fixed income trusts.

13.Who regulates fixed income trust products?

Fixed income trust products, like Sunshine Private Equity, were initiated by trust companies and filed with the China Banking Regulatory Commission. Trust companies are overseen by the China Banking Regulatory Commission, while private equity companies are overseen by trust companies and the China Banking Regulatory Commission.

14. Does the fixed income trust really protect the capital and guarantee the income?

Any investment has risks, and fixed income trusts have not promised to maintain capital or guarantee returns. However, fixed income trust products have a strict and effective risk prevention mechanism, which minimizes investment risk through asset mortgages, equity pledges, guarantee companies, and joint and several liability guarantees for individuals. (At present, the total size of the trust is about 10 trillion. Due to strict risk control measures, fixed-income trust products have no risk of affecting investors' principal and income redemption!) ^[1]

Second, advanced classes

1.How should investors choose fixed income trust products?

Investors can choose fixed income trust products from the following perspectives.

(1) Trust company: First, check the comprehensive strength of the trust company. There are currently 62 trust companies in China, and each company's management level, risk control ability, profitability, and management fund size are all different.

(2) Investment industry: An industry with a high degree of economic prosperity has more investment value.

(3) Guarantor: It depends on the background of the guarantor, the net assets and composition of the guarantor, the relationship between the guarantor and the financing party, and the responsibilities of the guarantor.

(4) Financing strength: understand the financing status, growth prospects, industry and company background of the financing side.

(5) Source of income: To understand the reliability of expected income, that is, the feasibility of project success.

(6) Product term: Generally, after the purchase of a trust product until the financing party pays the principal and interest, the investor's funds are not redeemable. Therefore, investors should be optimistic about the product term in order to arrange future cash flows. In addition, some products may be terminated early or postponed. Investors are also requested to note whether there are such additional terms before signing the contract.

(7) Settlement (pledge) rate: Settlement (pledge) rate refers to the value of funds required for financing compared to the value of (set) pledge. The lower the pledge (pledge) rate, the lower the project risk and the safer the project. At the same time, we must also look at the realisability of the collateral.

(8) Expected annualized return: When other conditions are the same, the higher the expected annualized return, the better.

2. Investment risk of fixed income trusts

The trust company has a strict and effective risk prevention mechanism, and designs effective risk avoidance schemes for each trust plan to minimize the risk of trust investment. However, fixed income trust products do not guarantee principal and interest. Investment risks include: credit risk, liquidity risk, interest rate risk, and so on.

Credit risk: The financing party may have operating problems and cannot repay interest on time when due. The trust company guarantees investors' income as much as possible through mortgages, pledges, guarantees, and compulsory notarization.

Liquidity risk: Most fixed income products cannot be redeemed before the opening period, and even if they can be withdrawn in advance, there are certain costs, such as handling fees.

Interest rate risk: The expected income of a fixed income trust has been fixed at the time of issuance. Unless otherwise specified in the trust contract, it will not change with changes in interest rates. When it is in the interest rate increase cycle, the relative excess income of the fixed income trust will follow the riskless return The rate increases and decreases.

3. What are the risk control measures of trust companies?

Mortgage, pledge, guarantee, compulsory notarization, etc. The trust company will require the financier to pledge or mortgage the company's assets or equity to the trust company in order to protect the investors' income. At the same time, it will require the relevant company or company's responsible person to assume the guarantee responsibility, and to the loan contract, pledge contract, guarantee The contract is compulsory notarized. Several risk control methods are guarantees for investors' future returns.

4. Information disclosure mechanism of fixed income trusts

Fixed income trusts disclose the operation of the trust to investors in each trust quarter, including the direction of capital operation projects, project progress, the financial situation of the project company, the acquisition of collateral, pledged properties, realized income and distribution.