What is private credit and how does it work?
Learn what private credit is and how this type of investment works
Announcements
Private credit securities are interesting investment options for those looking for good returns on fixed income.
After the Selic rate rose 10 times in a row, these assets once again caught the attention of investors.
The good news is that there are several opportunities in the financial market. However, for an investor to accept taking certain risks, it is necessary to offer good advantages, such as a more attractive return.
If you want to understand more about private credit and how this investment works, continue reading!
What is private credit?
Private credit securities are issued by companies and institutions that aim to raise funds for their projects.
When a company needs financial resources, it can choose between several forms of financing. One of them is private credit.
In other words, whoever acquires a title is lending their money in exchange for an interest rate.
These securities generally attract the attention of investors who want to diversify their portfolio in fixed income assets.
In practical terms, private credit enables the issuance of fixed income securities that bring benefits to investors seeking to make a return on their capital.
Furthermore, they are also advantageous for companies seeking resources to carry out projects and innovations.
It is important to mention that these securities provide a more advantageous return than traditional fixed income investments.
This means that this type of investment also involves more risks. After all, private credit securities do not have the protection of the Credit Guarantee Fund (FGC).
What are private credit securities?
Now that you know what private credit is, it's time to find out what the main types of securities are:
Debentures
A debenture is basically a security issued by private companies that offers credit rights to investors.
It works like this: a company needs a certain amount of money to pay debts or even carry out expansion operations.
However, instead of taking out a loan from the bank, it issues debentures on the market and is thus able to raise the necessary funds.
The rules related to the terms and format of the debenture remuneration are defined at the time of issuance.
This means that whoever invests in a debenture already knows how long the money should remain invested.
The investor will be remunerated through interest, which may be fixed, post-fixed or hybrid.
CRI and CRA
CRI is the acronym for Real Estate Receivables Certificates, and CRA is the acronym for Agribusiness Receivables Certificates.
These securities are backed by credit operations linked to the real estate and agribusiness sectors.
Receivables certificates are issued by securitization companies: non-financial institutions that transform accounts receivable into tradable securities in the capital market.
You can receive payment periodically or on the paper's due date.
CRI and CRA are investments exempt from Income Tax (IR). However, this type of investment is not covered by the FGC.
FIDC
FICS is the acronym for Credit Rights Investment Fund.
It is not as well-known an investment as the first two, however, depending on your investor profile and objectives, it can be an interesting alternative.
It is an investment fund that invests in credit securities created from accounts receivable from a specific company.
It works like a union of investors, who pool their resources in a common investment for everyone.
But for this to happen, it is necessary that at least 50% of the net equity be allocated to applications in Credit Rights.
Credit rights arise from debts that a company has the right to receive.
How to invest in private credit securities?
The first step is to identify your investor profile, so that you can analyze the risks you are willing to take and create an investment strategy.
In addition, it is also necessary to check whether the conditions and maturity dates are consistent with your financial objectives.
Next, you will need to open an account with a brokerage firm and identify the options available.
To be more secure, analyze the default risk of the institution issuing the securities.
Furthermore, since private credit securities are not protected by the FGC, it is normal for issuers to offer some guarantees. And it is important that you check what type of guarantee the company offers.
What are the advantages of private credit securities?
Among the main advantages of private credit securities, we can mention:
The main advantages include:
Profitability
The profitability is usually higher than that offered by traditional fixed income assets, such as CDBs.
This is because, as they are subject to greater risks of default by issuers, these bonds tend to offer more advantageous rates of return.
Lower risk than variable income
As you already know, investing in private credit securities is a little riskier than investing in other fixed income assets.
However, this type of investment offers less risk than variable income, as the price of shares fluctuates frequently.
Private credit care
Private credit securities, as previously mentioned, offer very attractive returns.
However, the risks involved are also greater.
Therefore, you have to take into account the payment potential of the company issuing the bonds. To do this, you can evaluate the company's conditions and history.
The higher the rating (grade assigned by risk rating agencies), the lower the risk of default.
Conclusion
Before investing in private credit securities, you should consider your investor profile, financial objectives and risk tolerance.
It is also important to diversify your portfolio to reduce risks and thus find the best risk-return ratio, according to your profile and objectives.
