PIB
Pakistan Investment Bonds are issued by SBP on behalf of federal government. These are long-term sovereign bonds with maturities ranging from 3 Years to 30 Years. The profit on the investment in PIBs is paid in the form of Coupon payments. The coupon payments are paid at a fixed rate of face value of PIBs on semi-annual basis. PIBs are only redeemable at maturity. However, an investor can sell PIBs in the secondary market through a dealer.
Benefits
- Guaranteed Repayment: The repayment of face value at maturity and periodic coupon payments are guaranteed by the government of Pakistan.
- Higher Return: These securities provide higher returns to the investor, as compared to most bank deposits.
- Accepted as Collateral: PIBs are acceptable by the banks as collateral.
- Liquidity: Highly Liquid and tradable in the secondary market.
TFC
A Term Finance Certificate (TFC) is a corporate debt instrument issued by companies in Pakistan to generate short and medium-term funds. The maturity of the certificate depends on the issue of the bond. PIBs typically provide higher yield compared to Government Bonds and Bank Deposit due to higher risk.
Types of TFCs
- The TFCs issued to date include both fixed and floating rate instruments, although issuers have lately tended to favor the floating rate variant.
- The coupon rate on floating rate TFCs is set at a risk-free benchmark rate plus a risk spread to reflect the relative risk of the instrument. The risk-free benchmark is typically the SBP’s discount rate, or the auction yield on the Pakistan Investment Bond (PIB) of equivalent maturity.
- Floating rate TFCs may impose caps and floors on the coupon payments.
- Some TFCs may have embedded call and put options.
Like bonds, TFCs are structured to provide regular income in the form of coupons, which are typically paid semi-annually. However, unlike a generic bond, where the principal is repaid in lump sum at maturity, a TFC’s principal is gradually redeemed over the tenor of the instrument.
