In the big concept of funds, we always hear two words, fund priority and fund inferiority. So what do these two words mean? Let’s take a look at what role they play in the fund.

What are priority and inferior levels?

Also called hierarchical products, under an investment portfolio, two or more levels are formed by decomposing the expected income or net assets of the product. Risk expected return, the performance of which has a certain differentiated product share.

In order to meet the different needs of investors, priority is suitable for investors who prefer fixed expected returns and have low risk tolerance, and there is often an agreed expected rate of return; while secondary is positioned for those who expect to raise funds through financing. Investors who increase their investment capital, thereby obtaining excess expected returns, and have a preference for higher risk expected returns.

What is the difference between priority and inferior?

From the perspective of expected return rate

Priority will maintain a relatively certain and capped expected return. rate; while the inferior class does not have a certain expected rate of return target, in the simplest priority structure, after paying the expected return of the priority, all remaining expected returns generated by product investment belong to the inferior class.

From a risk perspective

When investment losses occur, they will first be absorbed by the inferior class. Only if the inferior class is completely lost will the loss be transferred to the priority class. Therefore, from a risk perspective, the inferior class represents the share with the highest risk, while the priority class represents the share with relatively low risk.

To sum up, the priority risk is small and the expected return is relatively fixed; the inferior risk is higher, but the expected return is also higher.

That’s all about the content about priority and inferiority. Everyone should have their own considerations. I hope it will be helpful to everyone. Warm reminder, financial management is risky, so investment needs to be cautious.