Guaranteed Investment Fund (GIF)

Guaranteed investment income is a type of investment product offered by insurance companies that allows its client to invest in an equity, bond and/or index fund while providing a promise of a predefined minimum value of the fund (usually, the initial investment amount) will be available at the fund's maturity or when the client dies. Insurance companies usually charge up to 1 percent of the investment amount per year for this service.

Some guaranteed investment income funds also give people the opportunity to reset the guaranteed amount during specific periods of time. This allows investors to lock in greater sums in the event that they incur a large capital gain.

For example, suppose an investor near retirement age had invested $500,000 into this fund and after a incredible bull run, his investment grows to $585,000 in a year. By resetting the guarantee at this point in time, the investor has now guaranteed that he will at the very least receive $585,000.

Guaranteed investment funds, as their name shows, guarantee that all or part of the invested capital will be secure for a specific date in the future. And in some cases there is the possibility for almost guaranteed returns.

Main concepts

• Guarantee maturity date: a date in the future when all of the fund's shares are guaranteed to reach a specific net asset value (guaranteed net asset value). Only those shareholders that leave their investment until the maturity date will be entitled to the guarantee. If a redemption is made before that date then there could be great losses
• Guarantor: Entity that commits to providing the funds required to ensure the investor keeps their initial investment if the guaranteed investment fund does not perform in a way that generates net asset value. When this amount is delivered directly to the fund then there is an internal guarantee; if the shareholder receives the amount then the guarantee is external.
• Marketing period: period during which shares can be purchased from a guaranteed fund without paying subscription fees.
• Liquidity windows: some guaranteed funds set predetermined dates when the shareholder can receive a total or partial redemption without paying redemption fees. To do this you must respect the notice periods stated in the brochure. Given that these redemptions are done according to the net asset value on that day, the guarantee is not applicable and losses may be incurred.