What Is Guaranteed Investment Income (GIF)?
Guaranteed Investment Income (GIF) is an investment product provided by insurance companies that allows clients to invest in equity, bond, or index funds while ensuring a predetermined minimum value will be available at the fund’s maturity or in the event of the client’s death. This minimum value typically equals the initial investment amount.
Insurance companies typically charge an annual fee of up to 1% of the investment amount for this service.
How Guaranteed Investment Fund (GIF) Works
Some GIFs offer the option for investors to reset the guaranteed amount at specific intervals. This feature allows investors to lock in higher sums in case of significant capital gains.
For example, if an investor nearing retirement age initially invests $500,000 in a GIF and experiences a substantial market gain resulting in a portfolio value of $585,000, resetting the guarantee at this point ensures a minimum value of $585,000.
Key Takeaways:
- Guaranteed Investment Income is a product offered by insurance companies.
- Various types of GIFs are available with different features.
- GIFs promise to secure some or all of the invested capital at a specified future date.
Concepts of Guaranteed Investment Funds
As the name suggests, Guaranteed Investment Funds assure that a portion or all of the initial investment will be protected until a predetermined future date, offering the potential for nearly assured returns.
Guaranteed Maturity Date
This is the future date when all fund shares are guaranteed to reach a specific net asset value. Investors who hold onto their shares until this date are eligible for the guaranteed value. Early redemption may result in significant losses.
Guarantor
The guarantor is the entity responsible for ensuring that investors receive their initial investment back if the GIF does not perform as expected. This entity can provide funds directly to the fund (internal guarantee) or to the shareholder (external guarantee).
During the marketing period, shares can be purchased without subscription fees.
Guaranteed Fixed Yield
These funds not only secure the initial investment until maturity but also provide predetermined returns, typically expressed as an annual percentage rate.
Liquidity Windows
Some GIFs offer specific redemption dates without fees, provided investors adhere to the notice periods. However, redemptions on these dates are based on the net asset value, so the guarantee does not apply, potentially leading to losses.
Guaranteed Variable Yield
These funds secure the initial investment until maturity and offer returns based on the performance of multiple financial assets. Investors should note that if the underlying assets do not perform as expected, returns may be affected.