What is TFC of Pakistan?

Answer 1

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