Investing, Stock Market

GICs vs Mutual Funds Compared: Which to Choose?

When it comes to choosing the right investment vehicle in Canada, two popular options that often come to mind are GICs and mutual funds. 

Both GICs and mutual funds provide you with a means to earn returns on your investments, but they differ in several key aspects. 

Deciding between the two requires careful consideration of factors such as risk tolerance, investment goals, and liquidity requirements.

In this comparison article, we will delve into the differences between GICs vs mutual funds, examining their respective features, benefits, and drawbacks. 

By understanding the characteristics of each investment vehicle, you can make informed decisions that align with your financial objectives and risk appetite. 

What is GIC?

A Guaranteed Investment Certificate (GIC) is a type of financial instrument that provides a fixed rate of return over a specific period. 

It is considered a safe investment option that offers a guaranteed principal amount at maturity. 

GICs are typically offered by banks, credit unions, and other financial institutions.

When investing in a GIC, you agree to lend a certain amount of money to the issuing institution for a predetermined period, known as the term or maturity. 

In return, the institution guarantees to repay the initial investment along with the agreed-upon interest rate at the end of the term. 

The interest rate on GICs can be fixed or variable, depending on the terms of the investment.

GICs offer different maturity options, ranging from a few months to several years. 

The longer the term, the higher the interest rate tends to be, providing investors with the potential for increased returns. 

However, GICs also come with limited liquidity, meaning that access to the invested funds before the maturity date may be restricted or subject to penalties.

Overall, GICs serve as a conservative savings option, offering a guaranteed return on investment and a reliable way to grow one’s capital over a fixed period.

Check out the best GIC rates in Canada

Pros and Cons of GICs

It’s important to carefully consider the pros and cons of GICs and assess how well they align with your financial goals, risk tolerance, and liquidity needs before deciding to invest in them.

Below are the key pros and cons of GICs:


  • Guaranteed Returns: GICs provide a fixed rate of return over a specified period. This predictability allows investors to know exactly how much they will earn from their investment, making it easier to plan for future financial goals. 
  • Capital Preservation: The principal amount invested in a GIC is guaranteed by the issuing institution, ensuring that the investor will receive back the initial investment amount at maturity. 
  • Low Risk: GICs are considered low-risk investments compared to other options in the financial market. They are typically insured by government deposit insurance programs, such as the Canadian Deposit Insurance Corporation (CDIC), providing an additional layer of protection for investors.


  • Lower Potential Returns: While GICs offer guaranteed returns, the interest rates tend to be relatively low compared to other investment options, such as stocks or mutual funds. 
  • Limited Liquidity: GICs have fixed terms, meaning that the invested funds are locked in for a specific period. This lack of liquidity can be a disadvantage for individuals who may need immediate access to their money or who prefer the flexibility to adjust their investment strategy based on changing market conditions.
  • Opportunity Cost: By investing in a GIC, you may miss out on potentially higher returns from other investment options. If market conditions are favorable, other investments such as stocks or mutual funds could generate more substantial gains over the long term.

What is a Mutual Fund?

A mutual fund is an investment vehicle that pools money from multiple investors to create a diversified portfolio of securities such as stocks, bonds, or other financial instruments. 

It is managed by professional fund managers who make investment decisions on behalf of the investors. 

The mutual fund units represent the proportional ownership of the underlying assets held by the fund.

Mutual funds offer individual investors an opportunity to access a diversified portfolio without the need for extensive knowledge or expertise in investing. 

By pooling funds from numerous investors, mutual funds can achieve economies of scale and provide access to a wide range of investment opportunities that may be otherwise inaccessible to individual investors.

One of the key advantages of mutual funds is their liquidity. Investors can typically buy or sell mutual fund units on any business day at the current net asset value (NAV). 

This provides investors with flexibility and ease of access to their investments, allowing them to enter or exit the fund based on their financial goals or changing market conditions.

Mutual funds come in various types and categories, catering to different investment objectives, risk profiles, and time horizons.

Whether you seek long-term capital appreciation, regular income, or a combination of both, there are mutual funds available to suit your specific needs.

Check out the best-performing mutual funds in Canada.

Pros and Cons of Mutual Funds 

The following are the key pros and cons of mutual funds you need to consider. You want to determine they align with your financial goals, risk tolerance, and investment time horizon.


  • Diversification: Mutual funds offer you the benefit of diversification by pooling your money with other investors. This allows for a wide range of securities to be included in the fund’s portfolio, reducing the impact of individual security performance on the overall investment.
  • Professional Management: Mutual funds are managed by experienced professionals who have expertise in analyzing and selecting investments. They actively monitor the portfolio, make informed investment decisions, and adjust holdings based on market conditions and the fund’s objectives.
  • Liquidity: Mutual funds offer high liquidity as investors can buy or sell their fund units at the prevailing net asset value on any business day. This allows you to easily convert your investments into cash when needed.


  • Fees and Expenses: Mutual funds have management fees, expense ratios, and buy and sell charges. These expenses can erode the overall returns of the fund and impact investor profitability.
  • Lack of Control: When investing in a mutual fund, you delegate the decision-making authority to the fund manager. This means you have limited control over specific securities or the timing of buying and selling within the portfolio.
  • Market Risk: Mutual funds are exposed to market fluctuations and the performance of the underlying securities. While diversification helps mitigate risk, there is still a possibility of losses during market downturns.
  • Underperformance: Not all mutual funds outperform their benchmarks or generate consistent positive returns. Some funds may underperform due to factors such as poor investment choices, higher expenses, or changes in market conditions.

GICs vs Mutual Funds: Which to Choose?

From the above discussion, it is obvious that GICs and mutual funds are two distinct investment options that differ in several key aspects. 

Here is a detailed comparison highlighting the factors that differentiate them:

1. Risk and Return

GICs are considered low-risk investments as they offer a guaranteed rate of return over a specific period. 

Even though the returns are lower, they are predetermined and fixed, providing stability and capital preservation. 

Mutual funds offer a range of risk profiles depending on the types of securities held in the portfolio. 

They can provide higher potential returns compared to GICs but also come with a higher level of risk due to market fluctuations. 

However, the returns on mutual funds are not guaranteed and can vary based on the performance of the underlying investments.

2. Investment Diversification

GICs are individual fixed-income investments offered by financial institutions. 

They do not provide diversification as the investment is typically focused on a single institution and fixed or variable interest rates.

On the other hand, mutual funds are designed for diversification. 

They pool money from multiple investors and invest in a diversified portfolio of securities such as stocks, bonds, or other assets. 

This diversification helps to spread risk and potentially enhance returns.

3. Investment Management

GICs do not require active management as they offer a fixed rate of return for a specific period. 

The investor knows in advance the return they will receive at maturity.

Mutual funds are actively managed by professional fund managers who make investment decisions on behalf of the investors. 

They conduct research, monitor the portfolio, and adjust holdings based on market conditions and the fund’s objectives.

4. Liquidity

GICs have fixed terms, typically ranging from a few months to several years. 

They are not easily liquid. Also, they can impose penalties or restrictions if the investor wants to withdraw the funds before maturity.

Mutual funds, on the other hand, offer higher liquidity compared to GICs. 

Investors can buy or sell fund units on any business day at the current net asset value. This provides flexibility and easier access to the investment.

5. Fees and Expenses

GICs generally do not have management fees or ongoing expenses. 

However, early withdrawal penalties may apply if funds are withdrawn before maturity.

Mutual funds have associated fees and expenses that can impact the overall investment returns.

Which to choose?

Ultimately, the choice between GICs and mutual funds depends on your:

  • Risk tolerance
  • Investment goals
  • Liquidity requirements
  • Preference for guaranteed returns versus potential higher returns 

It is crucial for you to carefully evaluate these factors and consult with a financial advisor to make an informed decision.

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7 Best Alternative Investments in Canada

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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