Introduction to Guaranteed Investment Certificate
Guaranteed Investment Certificate is an investment option with very less risk of losing the principal amount. This is a certificate provided by the government to the investor on account of the investor lending money to the government for a fixed rate of return.
Understanding Guaranteed Investment Certificate (GIC)
When the government needs money, there are plenty of courses from which it can raise its funds from. One of them is through Guaranteed Investment Certificates (GICs), where the public, retail investor can choose to lend money to the government in return for an amount paid to the investor at a certain rate of interest. GICs are a Canadian investment option, and are very safe. Regardless of the stock market performance or the market forces influence, the rate of return on the amount lent by the investor does not change. It can thus be considered as a debt investment option for investors, which is why it becomes an investment with return, and occupies a respectable place in a diversified portfolio. That said, GICs are not entirely risk free. Yes, the loss of money is minimal, if not entirely negligible. GICs require the investor to lock the amount in for a period of time, especially when they’re not redeemable GICs. If withdrawn before the maturity period, the investor stands the risk of losing the interest money, or even paying a penalty. The principal amount lent stays intact, though. And due to the very negligible risk that GICs pose, in comparison to market risk, the return is proportionally very little too.
Highlights of Guaranteed Investment Certificate (GIC)
GICs can run for a time period of as little as 30 days, or even 12 years. The interest rates across all the months and years can be availed in ranges spanning across various time periods. Due to its very little rate of return, regardless of the time period, the returns are never entirely on their own, enough to beat inflation. Guaranteed Investment Certificates thus, don’t work as good investment options on their own.
