In our final look at investment funds, today we describe two more complex and risky fund types.
A labour-sponsored investment fund (LSIF) is a fund that provides venture capital to new and small businesses and offers tax incentives to investors. LSIFs are issued by labour organizations or financial institutions.
These funds are riskier than traditional mutual funds, and tax credits may not be enough to offset any losses.
LSIFs have a hold period, which can be as long as eight years. If you sell your fund before the end of the hold period, you may lose your tax credits. In Ontario, the tax credit for LSIFs will be eliminated at the end of the 2011 tax year.
LSIFs incur mostly the same costs as mutual funds, although commission rates may differ from traditional mutual funds. In addition to management fees, some LSIFs also pay the manager an incentive fee.
Commodity pools are funds that invest in derivatives or commodities that conventional mutual funds are not permitted to invest in. Some commodity pools are highly speculative and have higher risk than traditional mutual funds. You could lose most or all of your investment.
Thanks for reading our Investments at a Glance series! We will be putting it aside for a few weeks, but will bring it back for Investor Education Month in October, when we explore the complicated world of alternative investments.