Key Benefits per Meridian:
• Unlimited upside potential
• No management fees or commissions (see below)
• 100% participation rate – you receive the full gains made on the index over the term
• Principal completely guaranteed at maturity
• Deposits insured by Deposit Insurance Corporation of Ontario (DICO)
Highlights & Features:
• $500 minimum investment for registered accounts
• $1000 minimum investment for non-registered accounts
• Earned Interest paid at maturity
• 5-year term
This investment might be ideal for you:
• It offers 100% principal protection
• It offers exposure to the Canadian stock market
• If you have an investment horizon of at least 5 years
• If you don’t plan to withdraw your investment prior to maturity higher potential return than that
offered by term savings.
You have to question the "No management fees or commissions" part. While an index ETF like XIU, iShares S&P/TSX 60 Index ETF, let's you participate in the market, it also pays you a 2.6% distribution (largely eligible dividends with favourable tax treatment). In contrast, Meridian is pocketing that dividend. Take note: with Meridian's GICs you are participating in the index only not the total return of the index.
You have to consider taxes. The GIC distributions you receive from Meridian are taxed as other income each year. In contrast the appreciation in XIU shares are not taxed each year which is better tax deferral. It's only when you sell your XIU shares any upside is tax but as a capital gain of which only half is taxable. Your upside in the Meridian GIC is fully taxed (100%).
So when could these products make sense? Only in a registered account because of tax implications. Only for those who are papasan pickles (lazier than couch potato investors who buy index ETFs). Only for those who think the market is getting frothy, and so they want to give up a 2.6% dividend to guarantee principal in a market crash.