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Mutual Funds as an RRSP Investment

Mutual funds are an excellent investment within a self-directed RRSP. The following are some of the key benefits of mutual funds, as an RRSP investment:

Diversification

Investors whose RRSP contributions are limited may achieve a more diversified investment portfolio through an investment in a mutual fund.

Tax Sheltering

Within an RRSP, your mutual fund investment grows on a tax-deferred basis and benefits from the power of compounding, as can be seen by the example below.

Example

Consider the case of these two investors. In both cases, all investment income is reinvested.

One investor contributed $5,000 annually to an RRSP, for 30 years, at an average annual compound rate of return of 8% and a 40% combined federal-provincial tax rate. This investor accumulated approximately $566,000 (before tax) and $340,000 (after tax); assumption for illustration purposes as tax shelter can continue with orderly withdrawals.

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The information contained herein is considered accurate at the time of posting. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only.

Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

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