Labour Sponsored Investment Funds
If you're looking for an investment that allows you to take advantage of federal and provincial tax credits, you should consider a Labour Sponsored Investment Fund (LSIF). LSIF investments promote economic growth and generate employment by providing venture capital to small- and medium-sized Canadian companies.
LSIFs are not suitable for all investors as they are considered relatively high-risk investments. To avoid having to repay the tax credits received, they must be held for a minimum of eight years. In addition, it is important to note that LSIF portfolios are generally less liquid than mutual funds because of their investments in private companies.
LSIFs are similar in structure to mutual funds, but differ in their investment focus. Mutual funds invest mainly in publicly traded securities, whereas LSIFs invest primarily in private companies that are not listed on public stock exchanges. Labour sponsored funds are sometimes referred to as Labour Sponsored Venture Capital Corporations (LSVCCs).
Because there is often little information available about small, private companies, LSIFs use a stringent due diligence process to evaluate companies before investing in them. Due to the process of researching and evaluating companies being considered for investments, the management expense ratio (MER) of LSIFs tend to be higher than those of conventional mutual funds.
Benefits Of LSIFs
- Tax credits
- Access to asset class not normally available through conventional investments
LSIF investors benefit from generous tax credits provided by the federal and provincial governments. Currently, there is a 15% federal tax credit available to individuals who invest in LSIFs. However, the maximum investment amount eligible for this federal credit is $5,000 per year. Certain provinces also offer additional tax credits for LSIF investments. For more information about which provinces offer tax credits and the maximum amounts eligible, please contact your CIBC Wood Gundy Investment Advisor.
Investments In Private Companies
LSIFs offer investors the unique opportunity to invest in an asset class that is normally not accessible through conventional investment vehicles. As an asset class, venture capital has several major distinctions from the equity investments common to most mutual funds. For example, LSIFs invest primarily in new companies that offer a product or service with significant growth potential, whereas mutual funds tend to invest in established companies with well-known products and services.
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