In the world of finance and investments, a specific part of a larger transaction is referred to as a tranche. The word tranche is actually a French word, and it is translated into English as a “portion” or “part.” Usually Tranches are used as a means of assuring investors of some sort of regularity in the payment of premiums on the investment in such larger transactions as collateralized mortgage obligations.
Function of Tranche
If someone is willing to understand the function of the tranche, it is helpful to see a large transaction as containing a subset of components, having investors funding the activity a little at a time. In these types of transactions it is a rare case if investors pay a lump sum in return for their share of investment in the security. Instead of that, they will pay in portions that are sometimes known as staged investments or tranches.
