A face-amount certificate company is an investment company which offers an investment certificate as defined by the Investment Company Act of 1940. In general, these companies issue fixed income debt securities that obligate the issuer to pay a fixed sum at a future date. They are generally sold on an installment basis. [1]
An investment certificate is an investment product offered by an investment company or brokerage firm designed to offer a competitive yield to an investor with the added safety of their principal.
The Investment Company Act of 1940 is an act of Congress. It was passed as a United States Public Law on August 22, 1940, and is codified at 15 U.S.C. §§ 80a-1–80a-64. Along with the Securities Exchange Act of 1934 and Investment Advisers Act of 1940, and extensive rules issued by the Securities and Exchange Commission, it forms the backbone of United States financial regulation. It has been updated by the Dodd-Frank Act of 2010. Often referenced as the Investment Company Act, the 1940 Act or simply the '40 Act, it is the primary source of regulation for mutual funds and closed-end funds, an investment industry now in the many trillions of dollars. In addition, the '40 Act impacts the operations of hedge funds, private equity funds and even holding companies.
A face-amount certificate (FAC) is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some set date in the future. In return for this future payment, the investor agrees to pay the issuer a set amount of money either as a lump sum or in periodic installments. If the investor pays for the certificate in a lump sum, the investment is known as a fully paid face amount certificate.
Issuers of these investments are face-amount certificate companies. Very few face-amount certificate companies operate today because tax law changes have eliminated their tax advantages. The most notable financial services companies in the face-amount certificate business today are Ameriprise Financial and SBM Financial Group.
Ameriprise Financial, Inc. is an American diversified financial services company. Ameriprise Financial engages in business through its subsidiaries, providing financial planning, products and services, including wealth management, asset management, insurance, annuities, and estate planning.
Along with FAC, other company types that fall under the scope of the Investment Company Act of 1940 are Unit Investment Trusts and Management Companies.
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business and pay a proportion of the profit as a dividend to shareholders. Distribution to shareholders may be in cash or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase. When dividends are paid, shareholders typically must pay income taxes, and the corporation does not receive a corporate income tax deduction for the dividend payments.
A pension is a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a "defined benefit plan" where a fixed sum is paid regularly to a person, or a "defined contribution plan" under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.
A zero-coupon bond is a bond where the face value is repaid at the time of maturity. Note that this definition assumes a positive time value of money. It does not make periodic interest payments, or have so-called coupons, hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par value. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Preferred stock is a form of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior to common stock, but subordinate to bonds in terms of claim and may have priority over common stock in the payment of dividends and upon liquidation. Terms of the preferred stock are described in the issuing company's articles of association or articles of incorporation.
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year, and to repay the principal amount on maturity. Fixed-income securities can be contrasted with equity securities – often referred to as stocks and shares – that create no obligation to pay dividends or any other form of income.
A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).
In U.S. financial law, a unit investment trust (UIT) is an exchange-traded mutual fund offering a fixed (unmanaged) portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A UIT is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and is classified as an investment company.
UITs are assembled by a sponsor and sold through brokerage firms to investors.
Superannuation in Australia are the arrangements put in place by the Government of Australia to encourage people in Australia to accumulate funds to provide them with an income stream when they retire. Superannuation in Australia is partly compulsory, and is further encouraged by tax benefits. The government has set minimum standards for contributions by employees as well as for the management of superannuation funds. It is compulsory for employers to make superannuation contributions for their employees on top of the employees' wages and salaries. The employer contribution rate has been 9.5% since 1 July 2014, and as of 2015, was planned to increase gradually from 2021 to 12% in 2025. People are also encouraged to supplement compulsory superannuation contributions with voluntary contributions, including diverting their wages or salary income into superannuation contributions under so-called salary sacrifice arrangements.
In the United States, an annuity is a structured (insurance) product that each state approves and regulates. It is designed using a mortality table and mainly guaranteed by a life insurer. There are many different varieties of annuities sold by carriers. In a typical scenario, an investor will make a single cash premium to own an annuity. After the policy is issued the owner may elect to annuitize the contract for a chosen period of time. This process is called annuitization and can also provide a predictable, guaranteed stream of future income during retirement until the death of the annuitant. Alternatively, an investor can defer annuitizing their contract to get larger payments later, hedge long-term care cost increases, or maximize a lump sum death benefit for a named beneficiary.
Dollar cost averaging (DCA) is an investment strategy with the goal of reducing the impact of volatility on large purchases of financial assets such as equities. Dollar cost averaging is also called the constant dollar plan, pound-cost averaging, and, irrespective of currency, as unit cost averaging or the cost average effect.
Mortgage Insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.
A structured settlement factoring transaction means a transfer of structured settlement payment rights made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration. In order for such transfer to be approved, the transfer must comply with Internal Revenue Code section 5891 and any applicable state structured settlement protection law.
A mortgage loan or, simply, mortgage is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".
A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser is alive. A life annuity is an insurance product typically sold or issued by life insurance companies. Life annuities may be sold in exchange for the immediate payment of a lump sum or a series of regular payments, prior to the onset of the annuity.
A with-profits policy (Commonwealth) or participating policy (U.S.) is an insurance contract that participates in the profits of a life insurance company. The company is often a mutual life insurance company, or had been one when it began its with-profits product line. Similar arrangements are found in other countries such as those in continental Europe.
Income drawdown is a method withdrawing benefits from a UK Registered Pension Scheme. In theory, it is available under any money purchase pension scheme. However, it is, in practice, rarely offered by occupational pensions and is therefore generally only available to those who own, or transfer to, a personal pension.
