Which investment / saving vehicle to use?
Unlike other saving plans, RESP plans have a limited time period in which to grow your savings (up to 18 years). You want to make sure your savings work hard for you. Plans invested with a bank, trust company or life insurance company, or even through a financial advisor, are invested in stocks, bonds and mutual funds. These investments tend to be more volatile, your funds are exposed to a higher risk when comparing to a interest earning plan.
There are basically two most popular saving / investment vehicles being used in the RESP industry. They are namely mutual funds or pooled saving strategy.
The performance of the mutual funds is measured on the average annual yield rather than compound rates of return. When you purchase a mutual fund, you should be aware that all mutual funds charge a management fee (MER). The management fee is calculated annually as a fixed percentage and you can find the details in the mutual fund’s prospectus.
The MERs are charged whether the fund does well or not. It is not only collected on new deposits only, it is calculated on the total deposits and income accumulated on the deposits and income.
By pooling your money with other families’ contribution, you can access a wider range of investment options than if you were investing on your own. For instance, a certain government bond may only be available in denominations of $1,000.
On your own, it could take almost a year of monthly $100 payments to reach that minimum. With a pooled fund, your contribution will participate in that investment immediately.
The pooled savings is invested according to guidelines of National Policy 15, which regulates Calgary RESP providers of pooled funds. The portfolio consists of low risk investments like Guaranteed Investment Certificates, Federal and Provincial Bonds, Corporate Debt Securities, Term Deposits, Government Treasury Bills, Mortgage-backed Securities and Variable Rate Securities.