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What are Index-Linked GIC's?

• Index-Linked GIC's are term deposits. But instead of earning an interest rate which is known from the beginning, your interest return will depend on the stock market’s performance, as measured by the S&P/TSX60 Index. You may also refer to: Standard&Poor's or Yahoo Finance for more information. In this way, Index-Linked GICs are similar to mutual funds. Unlike mutual funds, though, your original deposit is guaranteed. Only the interest amount is unknown.
• Deposit is not redeemable before maturity.
• Minimum deposit of $1,000.

RSP Eligible

Index-Linked GICs are eligible investments for your Registered Savings Plan.

100% Protection

Your deposit is 100% guaranteed by the Credit Union Deposit Guarantee Corporation.

How it Works

HOW IT WORKS:

The investment return for an Index-linked GIC is based on the average of the quarterly index values in the final year of the deposit. The following example assumes $1,000 is deposited in a 5-year Index-linked GIC. The return is capped at 50% growth.

Example 1

Average of the Quarterly Index Value =(550+570+580+590/4)=572.50

Return Calculation

The gain is 112.50 (572.50 - 460) which is equal to 24.46% (112.50/460 X 100)

$1,000 X 24.46% = total dollar gain of $244.57

The compounded annual rate of return over the term is 4.47%

At maturity, the investor would receive $244.57 interest, plus the original $1,000.

Example 2

Start Value of the Index
(beginning of term) .................460 Index Value 270 days prior to maturity .......690 Index Value 180 days prior to maturity ...... 700 Index Value
90 days prior to maturity .........710 Index Value
1 day prior to maturity ............720 Index Value

Average of the Quarterly Index Value = (690+700+710+720/4) = 705

Return Calculation

The gain is 245 (705 - 460) which is equal to 53.26% (245/460 X 100). However, the return is capped at 50%.

$1,000 X 50% = total dollar gain of $500

The compounded annual rate of return over the term is 8.45%

At maturity, the investor would receive $500 interest, plus the original $1,000.

What if the Average of the Quarterly Index Values is lower than the start Value of the index?

This is the "worst case" scenario. The investor will still get their principal investment back, but there will be no interest. Based on the example, the investor would receive $1,000 on the maturity date.

What is the S&P/TSX 60 Index?

The S&P/TSX 60 index consists of the securities of sixty TSX - listed companies and provides economic diversity over ten market sectors. These are: consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, telecommunication services, and utilities.

S&P/TSX 60 Index - more information on company composition and other Frequently Asked Questions at Standard&Poor's

Who Should Consider an Index-Linked GIC?

• Fixed-Income investors who are not satisfied with current interest rates on deposit instruments and are searching for growth opportunities.
• Investors whose mutual funds have under-performed Canadian market indices.
• Individuals searching for diversified investment in Canadian corporations.
• Conservative individuals who are not willing to risk their principal (initial) investment.