Various types of investments are qualified for Registered Retirement Savings Plans (RRSPs), including guaranteed investment certificates (GICs), bonds, savings accounts and more. Although RRSPS are often associated with these generally safe long-term asset classes, the investment market has changed over the years, and with it has come the opportunity for higher returns, as well as risk-averse strategy to invest in real estate — all under the umbrella of your tax-protected RRSP portfolio.
Specifically, mortgage investment corporations (MICs) offer investors above-average rates of return (especially compared to a GIC) that are accompanied by relatively lower levels of risk. That’s because MICs are rather unique financial entities that are structured in a way to encourage investment in mortgages without the need for mortgage expertise and administration, or the risk that comes with other asset classes.
Structured for average investors
Decades ago, the Canadian government established the regulations allowing for MICs so that average investors — who aren’t experts in mortgages — can benefit from the terrific opportunities mortgages present as investment opportunities. Think about it. What makes mortgages attractive is that they are backed by the value of the underlying asset. So, even if the mortgage defaults, returns can be recouped.
Of course, none of this would be very accessible to average investors unless MICs were in place, since they are specifically designed to handle all the intricacies of not only investing in mortgages, but of managing them, administering them, and handling the various challenges involved in mortgages as a type of investment.
MICs are kind of like a mutual fund, in that a MIC consists of a pool of mortgages, but as an MIC investor, you are investing in the MIC itself, which delivers steady and stable returns without investors having to worry about the nuts and bolts.
A creative addition to your RRSP
In addition, what makes MICs even more attractive is that they not only qualify for your RRSP, but they act as a means of investing in real estate without, well, actually investing in real estate. Since mortgages are often used to fund new real-estate ventures, a MIC investor gets to participate in the attractive returns involved, while also having such returns protected from taxes as part of an RRSP portfolio.
In short, MICs offer average investors an opportunity to participate in Canada’s attractive mortgages and real-estate sectors without incurring undue risk, hassle or tax penalties associated with other types of asset classes.
ASCEND MIC is a mortgage investment corporation, with offices in Toronto and Richmond Hill, that specializes in various aspects of mortgage investing, lending, administration and more.