A major insurance carrier has recently announced the launch of their new Guaranteed Investment Funds (GIFs). These funds can be equated to a new breed of segregated fund offerings a guarantee similar to term deposits with the reward potential of mutual funds.

The carrier presently offers a guaranteed return of capital on 16 brand-name mutual funds. This soon-to-be expanding list of fund carriers currently includes Elliott & Page, Trimark, Fidelity, GT Global, and AGF. Effectively, the insurance company guarantees 100% of your deposit(s) upon death or at the end of a 10-year term. In addition, as the fund value rises, the investor has the opportunity to reset the floor value upon which a new guaranteed term is set. The investor must clearly understand that he must wait a full 10 years from the last reset in order to benefit from this guarantee. The guarantee element of this contract becomes more complex as the investor reaches specific ages (see your Fraser Financial Group advisor for details).

Acquiring a GIF is much like purchasing your choice of mutual fund(s), wrapped in an insurance security blanket. The most significant advantage to this "fund on fund" insurance investment opportunity is that your investment dollars are working under more secure conditions than direct securities can offer you. The guarantee cost is built into the fund's expenses, effectively reducing growth by one-half to three-quarters of a percent per year. To put the value of this guarantee into perspective, consider that in Canada 285 funds had a 10-year track record, during which time only one fund has lost money. Nonetheless, many of us feel most comfortable with principal risk eliminated completely before pursuing above average results.

The new GIFs currently operate outside the rules governing registered retirement savings plans (RRSPs), allowing unlimited foreign content in a registered environment. Predictably, Revenue Canada does not approve of this "loophole" and has already announced that to remain RRSP-eligible, foreign content in these funds must be reduced to 20% by 1998.

Aside from the capital guarantee, GIFs (like segregated funds, in general) offer the advantage of a direct beneficiary designated on non-registered accounts. This can be a truly valuable benefit to your heirs, since these funds will not be subject to the cost, delay and inconvenience of probate.

GIFs also offer a level of creditor protection that cannot be obtained through securities. This feature is particularly attractive to those who are commonly required to give personal guarantees or who may be sued unexpectedly in the future.

Along with these many attractive features, GIFs have restrictions and limitations that must also be considered. As with any investment, the prudent investor is advised to become well informed of the advantages and disadvantages of a product before purchasing.

If you are unsure whether or not a GIF will fit into your financial plan, please contact your Fraser Financial Group advisor for more information.