It is basically the pooling of assets that a finance company does not want to service anymore and converting them into securities for investors to invest.

This process enhances liquidity in the market, and it serves as a useful tool, especially for financial companies, as it helps them raise funds and generate additional income. It gives the original lender the possibility to remove the associated assets from its balance sheet, reducing liabilities and freeing up space to underwrite more loans. 

On the other hand, investors diversify their portfolios and get higher returns. Investors not only benefit from the income that flows from the assets that back the securities but also from the liquidity of the securities themselves - the ability to sell them to another buyer at any time.

Mortgage-Backed Securities (MBS), Collateralised Debt Obligations (CDO), and Asset-Backed Securities (ABS) are three of the most defined types of securities.

All financial assets can be securitized, but mostly loans and other assets that generate receivables are turned into a tradeable item.

Firstly, a company holding the assets segregates the data on the loans or the income-producing assets that it no longer wants to service. It then removes them from its balance sheet and clubs them into a reference portfolio.

This portfolio is then sold to such an entity which turns them into a security that the public can invest in. Each security represents a stake in the assets from the portfolio. Investors then buy the created securities in exchange for a specified rate of return.

Mostly, the reference portfolio is divided up into different tranches. Each tranche will consist of assets that share something in common, such as similar maturity dates or interest rates.