The term used to define the status of a person, here we are talking about financial status. Financial status is defined as the affordability of a person. Several things need to answer while we give an appropriate grade to a person.
- How much person can afford?
- What are the total assets or property he has?
- What he can afford?
- How much educated he is?
- How many dependent he has?
Another question comes in mind that why we need to answer all these questions. The purpose behind the grading of investments is to provide loans. Now who gives loans to whom? There are many organizations that provide loans to people. Bank is also one of them. These organization rate people to several classes A, AAA, B, BB and so on. This grading varies from one person to another depend on the nature of organization.
Grades help companies provide less risky loans.
The purpose behind the grading is to provide loans. Loan is the financial help that person needs to return to that specified company within given time period in defined chunks. Now what are chunks? Chunks are basically the small amount that person need to return to that company form where he has taken loan. Person need to return this amount within time frame. Chunks repeat in a month and every chuck needs to pay before specified time. Otherwise person need to pay define plenty against it.
The question come in mind that why we need to grade people?
Grading will help the company to consider the amount that how much they can provide to the person. If the person is stable enough, have a good job and have a strong position in society and also in the position to return that loan; in all these conditions the company will give a reasonable amount in terms of loan. Grading is done on the financial positions of a person. If the person can hardly in the situation to return that loan then the company will treat him in a different manner. This difference will give the company a stable platform in market. Otherwise they will be in the state of debts and unstable as well.
Things need to check before providing loan is as follows:
- Financial Status of a person
- Person need to give certain guarantee in terms of assets of property he has
- Person should not be a bankrupt
- Person must have something to use as collateral. like real estate, jewelry or any other property
This collateral can ensure the company for its own safety. The return amount also consists of certain percentage of interest as well. That why we give this process a name of investment grade. This is a kind of investment that organization done with person by providing them loan they required. Every chunk of loan they return they also pay certain interest on it. This is basically a earning of that organization; earning in terms of interest that people pay while they are re-tuning the specified loan.