The Market Growth GICs or Market Stock-Indexed GICs have their interest rates determined by the rate of growth of a specific stock market (such as the TSX or S&P 500). For example; if the TSX has a market growth increase of 30% in 3 years, beginning at the same point in time the GIC was issued, the GIC will return with an interest of 30%. However, unlike other GICs there is always a possibility that the market could perform poorly, having even no growth at all, in which the interest rate could return at 0%. Just like regular GICs, Market Growth GICs are extremely low-risk; the capital is guaranteed to remain intact (though the purchasing power is not), even if the stock market shrinks.
All Market Growth GICs have a maximum return. For example; if the GIC has a maximum return of 25% over 3 years, and the TSX has a market growth increase of 30% in 3 years, the GIC will return with an interest rate of only 25%. Maximum returns will typically range from 7% to 15% per year, depending on the market in which the GIC is invested and the length of the investment term.
The guarantee for GICs is provided by the Canada Deposit Insurance Corporation.
Read more about this topic: Guaranteed Investment Certificate
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