Mortgage Investment Corporations – MIC Funds

What is a Mortgage Investment Corporation? (MIC)

In a nut shell, a Mortgage Investment Corporation or MIC for short is an investment vehicle (corporation) that enables investors to invest in a diversified pool of real estate mortgages.

Investing in a MIC is similar to investing in a mutual fund in that the investor is investing in a series of mortgages as opposed to investing into a single mortgage. The advantage of this model is that it removes the impact of a single mortgage going bad by spreading the risk over the entire pool.

Investor returns are typically between 8% and 11% and the minimum investment ranges from $5,000 to $10,000.

MICs may be considered more stable than various other money market funds in that it invests in real property (tangible assets) versus other forms of securities which may invest solely on personal or corporate guarantees.

One of the reasons to invest in a MIC is that it is suitable for investors who do not have the time or interest in assuming the administrative responsibilities attached to running a mortgage portfolio. Essentially, the MIC allows investors to share in the benefits of the lucrative and relatively secure mortgage business back by the added security of real estate. Depending on individual circumstances, MIC’s can be an appealing investment to all types of investors. In other words you don’t need to have a high net worth to invest in a MIC.

A MIC is given special designation by Revenue Canada, highlighted in Section 130.1 of the Income Tax Act. To qualify as a Mortgage Investment Corporation for Canadian income tax purposes, the Fund must comply with the following:

  • At least 50% of the Fund’s assets must consist of residentially orientated mortgages and/or cash;
  • The Fund’s only business activity is investing funds of the corporation and not managing or developing any real property;
  • The Fund must not hold any investments secured by real property situated outside Canada or have debts owing to it by non-resident individuals, other than debts secured by real property situated in Canada; and
  • No shareholder may own more than 25% of the issued shares of any class.

MIC investments are able to be held in registered accounts including RRSPs, RRIFs, RDSPs, RESPs, and/or TFSAs.

MIC’s are a slow process of creating wealth. Stocks markets are exciting but many times there is little reason for a stock going up or down. This volatility makes it difficult to plan for the future. Mortgages on the other hand have a fixed rate of interest which is due and payable in a set pattern so you know what’s happening from day to day. MIC’s offer stable and predictable returns in what one might call a “boring” investment. “Boring” but very successful!

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