Money Management Newsletter: GICs
and Fixed Income
New twist to convertible GICs - Buy Mutual
Funds; write cheques
Over the past several years competition in the mutual
fund industry has largely been based on companies adding new and often
more exotic types of funds to their families or marketing "star"
Recent months however have seen the introduction of new products within
the industry as well as enhancements on some existing products that will
provide investors with more variety. One new product is a GIC
that is convertible to a mutual
fund prior to maturity while improved products include free chequing
market funds and "no-lose" investment funds.
The convertible GIC is offered by Trimark Trust which was formed when
Trimark Financial Corp. purchased Bayshore Trust. These GICs will be available
for purchase on September 29th, 1997 with the main benefits being higher
rates than the big 5 banks and Canada Trust and a feature that will allow
the holder to convert them to a Trimark mutual fund after half of the
selected term has expired. The GICs can initially be purchased for either
one, three or five years and can be converted after 6, 18 or 30 months
respectively. Investors therefore that are uncertain about stock
markets can place their money in one or more terms of these GICs,
earn better than savings rates and have the flexibility of breaking the
GIC without penalty and getting into the market during a downturn. The
mutual fund purchased however must be one of Trimark's backend load funds
so the investor's funds can not be withdrawn for six years without incurring
a redemption penalty. In effect a one year GIC purchase if converted can
become subject to a redemption fee for 6 years after conversion so the
investor has to be certain that he/she wants to enter the market for the
long term but earn a good rate on his/her money while trying to time market
Chequing privileges on money market funds is not a new concept as a few
mutual fund companies and National Trust and Royal Trust have offered
it on a restricted basis or with a fee. Free chequing has now been introduced
by Trimark on the Trimark Interest Fund which is a money market fund.
This article is not intended to be an advertisement for Trimark it's just
that they are the first to offer these products. Trimark will issue free
cheques to clients who request this privilege and cheques can be written
without a service charge. For each cheque written the client will receive
a confirmation which includes the cheque number, the date it cleared and
the remaining balance of the account. Cheques will however have to be
for a minimum of $1,000.00 and while there will be a stop payment provision
there will not be any overdraft protection. For depositors who keep large
balances in savings accounts using any money market fund with a chequing
privilege is a much better option. Daily interest savings account rates
at most of the major banks was .25% at the time of writing and 1.0% at
Canada Trust. Money market funds however were averaging around 2.75% (11
times better than bank daily interest rates) and chequing privileges provide
immediate access to funds for effective cash management.
Another mutual fund company, C.I. Mutual Funds, announced on September
17th that they will offer a selection of "no-lose" funds. They
will actually be segregated funds similar to what many life insurance
companies issue and C.I. will be renting a life insurance company's charter
in order to sell them. Like most segregated funds they will guarantee
return of invested capital after 10 years or upon death which may be important
in the estate planning of seniors. C.I. will be marketing these funds
under their own banner rather than just managing money for a life company
which is important to C.I. as it will enhance their own product line.
We can expect to see more wrinkles added to the product
lines of mutual funds companies as they try to improve their market share.
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© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.