Comparing GICs and Mutual Funds

Explore the differences between investing in GICs compared to Mutual Funds.

For investors, two of the most common retirement vehicles are Mutual Funds and Guaranteed Investment Certificates (GICs). They are both Canadian investment products that offer different levels of risk. Investments with the highest gains post the most risk.

GICs a Safe Investment—Mutual Funds Higher Risk

GICs guarantee your principal investment and are protected by Canada Deposit Insurance Corporation (CDIC). They can help balance out risk in your portfolio. Mutual funds are higher risk investments, but offer the potential for higher returns based on the stock market ups and downs.

A GIC is one of the safest investment options. In this agreement, you lend your funds to a financial institution for a set term. In exchange, you are paid interest at regular intervals, or upon the maturity date. The bank profits by earning higher interest on your money invested elsewhere, so you don’t pay management fees.

While conservative investors and those nearing retirement appreciate GICs for their predictability, more liberal investors with more time on their side may choose more market-driven equity investments.

Mutual Funds provide Small Investors Investment Opportunity

With Mutual funds, you pool monthly contribution with other small investors to invest collectively. With a pre-determined strategy, the fund manager will purchase a broad diversified portfolio of investments. You will profit when markets are up, and enjoy some protection as a group when they go down. Benefits are variable based on the manager’s initial strategy.

Mutual Funds Involve Plenty of Risk

When global markets fluctuate downward, equity investments—even through Mutual Funds—can lose much of their value. Investing with less diversification based on geography, industry, or investing in a single company can have the same effect. As retirement gets closer, many investors switch to safer investment products like GICs. 

GIC Investment Strategies

It’s important to determine your personal financial limits for risk and reward as you strategize investments like GICs and Mutual Funds. Some tips include:


Mutual Fund Investment Strategies

When researching Mutual Funds, consider a long-term strategy. Some tips include:

  • Compare fees closely. Over decades of investing, they can make a big difference
  • For added security, transition to more conservatively invested funds as you approach retirement age


Which Investment Offers a Better Return?

It is difficult to determine whether GICs or Mutual Funds offer higher returns. Typically, GICs guarantee your initial investment and offer a fixed rate return between 1-3%. Or, you can invest in market-linked GICs that protect your principal, with a fluctuating interest rate based on stock market performance.

GICs are low risk, and low maintenance as you lock the cash away, and nothing else needs to be done until the term is up. GICs can start as low as $100, and your investment is protected from market fluctuations.

With Mutual Funds, your return will vary based on how well the Mutual Fund performs as a whole. If it does well, you could make much more than you would with a GIC. On the flip side, you could lose money, including your principal investment if the stock market crashes.

Mutual Funds are spread over a numerous investments to reduce overall risk. There are no penalties to withdraw your funds. Fund managers are trained to help you get the most out of your investments. You can choose a fund with a high level of risk (and potential reward), or you can opt for a fund that’s less aggressive.

Making a choice between GICs and Mutual Funds depends on how comfortable you are with higher-risk investing, with potentially higher returns with Mutual Funds. If you want to protect your principal investment, a GIC may be best suited to your investment needs. A combination might be investing in a market-linked GIC. Mutual funds are better suited for investors who are willing to absorb more risk in return for more earning potential.

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