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LSDefine
Simple English definitions for legal terms
face-amount certificate
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A quick definition of face-amount certificate:
A face-amount certificate is a type of investment that promises to pay a certain amount of money at a specific date in the future. There are two types of face-amount certificates: installment type, which requires periodic payments, and fully paid, which requires a single lump sum payment. It is like a special piece of paper that shows you own a part of a company or a fund, and you will get your money back plus more after a certain amount of time. Another type of investment similar to this is a periodic-payment-plan certificate, which also requires periodic payments and represents an interest in certain securities or funds.
A more thorough explanation:
A face-amount certificate is a type of security that represents an obligation by its issuer to pay a stated or determinable sum at a fixed or determinable date or dates. There are two types of face-amount certificates:
- Installment type: This type of certificate requires the payment of periodic installments of a stated or determinable amount over a period of more than 24 months after the date of issuance.
- Fully paid: This type of certificate requires a single lump sum payment in exchange for the issuer's obligation to pay a stated or determinable sum at a fixed or determinable date or dates.
For example, if an investor purchases a face-amount certificate for $10,000 with a maturity date of five years from the date of issuance, the issuer is obligated to pay the investor $10,000 at the end of the five-year period. The investor may have paid for the certificate in a lump sum or through periodic installments.
Another type of security related to face-amount certificates is a periodic-payment-plan certificate. This type of security provides for a series of periodic payments by the holder and represents an undivided interest in certain specified securities or in a unit or fund of securities purchased wholly or partly with the proceeds of those payments. The holder of this security has substantially the same rights and privileges as those holders of face-amount certificates upon completing the periodic payments for which the securities provide.
For example, an investor may purchase a periodic-payment-plan certificate that requires monthly payments of $100 for five years. At the end of the five-year period, the investor will have an undivided interest in a unit or fund of securities purchased with the proceeds of those payments.