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Planning Your Retirement

Market Linked GICs

What are market linked GICs?
Market linked GICs are type of a GIC which claims best of both worlds. As we know that GIC is the only Investment vehicle which guarantees the principle. On the other side GIC has a very low rate of return as compared to capital markets. Market linked GIC claims to be best of both worlds, a capital guarantee and in case the market moves up it has a potential to deliver higher returns.

What all things should be considered before investing in market linked GIC?
There are a few very important things that an investor must be aware of. As most of the financial institutions do not give full disclosures to the investor, it is important for you to consider the following facts.
1) Your money is locked in for that period. You can not access the funds even if you want to pay some penalty as early redemption is not possible.
2) Rate of return is very opaque the client does not know until the maturity date how much money will he receive after the maturity date. Moreover, the advertisements of market linked GIC from the financial institutions are misleading. For example, if the advertised rate of return is 18% infact this is the total rate of return since the contribution was made. That means 18% is the total return in 3 years if it is 3 years GIC and not in one year. In this case annual rate of return is only 6%. The other factor is the maturity date, as it is very critical. if there is a significant downward movement is the market you might net out to zero percent or no rate of return.

Should I invest into market linked GIC’s?

Honestly, Market linked GIC’s have a lot of short comings and you should consider investing in them only
1) If you do not need the funds in next three years.
2) You are ready to take a zero percent return.


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