Mutual Funds or GIC: Which is Right For You?

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Mutual Funds and GIC are two types of investments with different risk levels. If you’re searching for a low-risk investment with a guaranteed return, GICs are a good choice. On the other hand, investors that are willing to take on a little bit more risk for higher earning potential can consider mutual funds.

What is a GIC?

GIC stands for Guaranteed Investment Certificate. It’s a type of investment that gives the investor interest on their money over a specific period.

The way GIC works is when a bank or financial institution opens an opportunity for the public to invest in them and get a percentage interest in return. e,g, “You are guaranteed a 5% interest rate for five years when you invest your money”. 

It is similar to a loan actually. You’re lending the bank money and charging them annual interest.

What is a mutual fund?

A mutual fund is a collective investment that pools money from a group of investors to buy a variety of securities like stocks or bonds. This means you have a share or fraction of the different investments purchased. 

Mutual funds are a way to make diversified investments and allow investors to have a stake in various investments. Here, the fund manager follows a predetermined approach to purchasing a broadly diversified portfolio of investments.

Differences between Mutual Funds and GIC

GICMutual Funds
1.GIC has a lock-in period, so you can’t easily access your money.There is no lock-in period, meaning you can access your money anytime.
2.GIC is a low-risk investmentMutual funds are riskier but have higher interest returns.
3.There are penalties and extra fees for early withdrawal.There are no penalties or extra fees. You can buy and sell your unit anytime.
4.They do not require any type of initial fee. The only thing you need to deposit is your money (investment)Mutual funds are somewhat expensive because you are paying initial deposits, as well as paying for the service of the funds’ manager among other fees.
5.You won’t have to worry about monitoring or
supervising market fluctuations.
The fluctuations are monitored or handled by a funds manager who is an expert in the stock market.
6.It’s not a flexible investment option, there are certain agreements put in place.There is more flexibility with mutual funds.
7.It’s a good option for low-risk investors because there are almost no risks. It’s the best option for medium to high-risk investors because of the volatility of the stock market.
8. GIC is covered by insurance and deposits are insured. Losses can be recovered in the case of bankruptcy.There is no insurance. Losses can’t be recovered.

Similarities of GIC and Mutual Funds

  • There are both excellent long-term investments.
  • They are both great options for investment newbies as there is little need to monitor or worry about market fluctuations.
  • They are both held in registered and non-registered accounts.

Which Investment is riskier: GIC or Mutual Fund?

Both have some level of risk but with mutual funds, your investment is diversified. This means you will likely not lose all your money in the case of a downturn. The primary risk in GIC is inflation and if the bank goes bankrupt. 

Bottom Line

GIC and Mutual Funds are both great investment opportunities, but you need to consider the risk, returns, and access to your money before making a decision. You also don’t have to pick one or the other, as you can choose to opt for both, especially for someone who is a high to a middle-risk investor. A diversified portfolio is one way to build wealth quickly.

Learn more about other investment types compared with mutual funds:

Mutual Funds vs FD

Mutual Funds vs Segregated Funds

Mutual Funds and ETFs

Mutual Funds vs Treasury Bills

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