A Guaranteed Investment Certificate (GIC) is one of the safest ways to invest. When you buy a GIC, your original investment and interest earned are returned to you at the end of a fixed period of time. While GICs are considered low-risk, they are also versatile, offering a wide range of interest rate options, term lengths, and other variables. Let’s take a closer look at a GIC built for higher potential growth.
What is a market-linked GIC?
A market-linked GIC is a term investment, linked to the performance of stock market indexes. The better markets perform, the more interest you earn on your GIC. Unlike a direct investment in the markets, your original investment – your principal – is guaranteed, should the markets decline. A market-linked GIC has a set term, usually between one and five years.
Why should I invest in a market-linked GIC?
A market-linked GIC offers the potential of higher returns than other fixed-income products. This opportunity comes with slightly more risk than a traditional GIC. While you could earn a strong return if the market performs well, you take the chance that you’ll earn minimal interest over the term of the investment.
Thankfully, even if markets underperform, the principal of your market-linked GIC is guaranteed. Some market-linked GICs provide a minimum guaranteed return, in addition to the principal.
A market-linked GIC might be right for you if you’re looking to take advantage of market growth, but want the security of knowing your original investment is protected. To help maximize returns, market-linked GICs at Meridian have no fees and are both RRSP and TFSA-eligible.
Understanding key terms
As you explore market-linked GICs, it is important to understand a few key terms.
Minimum return
A minimum return is a guarantee that you will earn a certain amount of interest, no matter how the market index performs over the term of your GIC. Keep in mind:
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The minimum return for a market-linked GIC is often lower than the return for a fixed-rate GIC with a comparable term.
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Not all market-linked GICs offer a minimum return.
Maximum return
Some market-linked GICs have a maximum return. This means that even if the index performs extremely well, your return will be limited to the maximum amount set by your GIC agreement.
For example, if the index returns 15% and your 3-year market-linked GIC has a maximum 12% return, you will receive 12% on your GIC and not the actual index return of 15%.
Participation rate
The participation rate – found in your GIC agreement – refers to how much your GIC “participates” in the gain of the index to which it’s linked. In other words, it can limit the earning potential of a GIC. For example, if your GIC has a participation rate of 60% and the index rises 20% over its term, your earnings will be limited to 12% (which is 60% of 20%).
At Meridian, each of our market-linked GICs has a participation rate of 100%.
Exploring Meridian’s market-linked GICs
With the wide range of market indexes and sectors, there are many options when it comes to market-linked GICs.
Examples of progressive options offered by Meridian include:
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Environmentally Responsible Market-Linked GIC – an investment linked to 20 companies; respecting the environment from different economic sectors.
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Diversity Market-Linked GIC – invests in 20 companies in a variety of sectors around the world, each with diversity policies in place, where women hold 30% of company board seats.
See a full list of Meridian’s market-linked GICs
Talk to a Financial Planner
If you have questions about finding the right market-linked GIC, reach out to one of our experts. Find a Financial Planner
