Thursday, September 20, 2012

Guaranteed Investment Funds or Mutual Funds - what's the difference?

There are several differences between Mutual Funds and Guaranteed Investment Funds.  "GIFs" are are offered through Insurance Companies and offer many features and benefits that Mutual Funds do not, including:

A Maturity Guarantee
The maturity guarantee gives an investor the option to choose a guarantee of 75% or 100% of his or her net investment.  When he or she cashes in the GIF at a specified future date (usually ten years), he or she will receive the greater of the guaranteed amount or the current market value.  This feature provides long term protection from poor market performance while providing the opportunity to participate in the upside of good market performance. It is also useful if money is borrowed to invest.   

A Death benefit Guarantee
Death guarantees are similar to maturity guarantees but do not have a time requirement as the net investment is guaranteed on death. This is a very useful estate planning tool to protect funds to be passed on to loved ones if the investor were to pass away in a down market.

Protection of Market Gains - Resets
Either twice a year or on the investment anniversary date, there is an option to lock in all the gains to date, which resets the guaranteed amount at a higher level. So if the market is down, the investor is still protected by his or her original guarantee.  If it is up, the gains can be locked in.   

Avoiding Probate
Upon the death of the investor, Guaranteed Investment Funds flow to the beneficiaries without going through probate.  By avoiding the probate process, the funds are not tied up for months or longer.  Rather, they pass to the beneficiaries in days or weeks.  In addition, probate tax is avoided.  On a $1 million estate, probate tax would be just under $15,000 in Ontario. 

Creditor Protection
Provided that the investment is made before any creditor issues are apparent and the decision is a sound investment decision, then the creditor protection applies.  This is a particularly useful feature for business owners. 

Competitive Fees
For investors with $250,000 or more, there are offerings that carry significantly lower fees than the average mutual fund.  The MER or Management Expense Ratio, of these funds can be under 2%, including all of the features outlined in this article. 

We are here to help if you have any questions as do your investigation. You can request a call at a particular time by sending us an e-mail, or call us at the phone number on our web site and we will answer or get right back to you.  

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