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Monday, December 26, 2011

What is a Term Finance Certificate (TFC)

What is a Term Finance Certificate (TFC) A corporate debt instrument issued by companies to generate short and medium-term funds. Corporate TFCs offer institutional investors, in particular retirement funds and insurance companies, with a viable high yield alternative to the National Saving Schemes (NSS) and bank deposits. TFCs are also an essential complement to risk free, lower yielding government bonds such as PIB. TFCs can be issued both as a fixed or floating rate instrument and may have a call or put option. TFC Rating A TFC must be rated before issuance. The rating reflects, the credit risk of The TFC, i.e. the issuer’s ability and commitment to repay scheduled TFC payments. Currently two rating agencies PACRA and JCR-VIS are operating in Pakistan. Income/Return structure of TFC Like bonds, TFCs are structured to provide regular income in the form of coupons. Unlike a generic bond, a TFCs principal may gradually be redeemed over the tenor of the instrument. TFCs are exempt from Capital gain tax. However, coupons payments are subject to income tax. * Invest only in listed scrips and carries a minimum BBB rating. Salient features of TFC Redeemable capital Monitored by Trustee Return on investment may be fixed or floating

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