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Saturday, August 16, 2008

Labour-Sponsored Investment Funds and Commodity Pools

From The Hoss's Mouth

Today's Hoss Cents Free Financial Money Magazine post will highlight two unique investment fund types: Labour-Sponsored Investment Funds and Commodity Pool Funds. They are both considered high risk. So, The Hoss reminds you that if the risk tolerance assessment done by you and your financial adviser indicates you have a low risk tolerance, these funds are not for you.

Labour-Sponsored Investment Fund (LSIF): These funds help new and small businesses obtain venture capital and provides the investors with tax incentives. The costs associated with these Labour-sponsored investment funds are the same as mutual funds. However, the commission rates may vary from mutual fund commission rates and the manager may receive an incentive fee on top of the normal management fees.

The investors earn money from distributions of interest, dividends and/or capital gains. In addition, the investors may have a capital gain or loss when they sell their units or shares.

Financial institutions or labour organizations issue LSIFs.

labour funds

The hold period on LSIFs can be as long as eight years, and even if you hold them long enough to qualify for tax credits, those tax credits may not be enough to offset any losses. SPECIAL NOTE: At the time of this post, LSIF tax credits in Ontario are scheduled to be eliminated at the end of the 2011 tax year.

Commodity pool: This fund invests in commodities or derivatives that are not permitted for investment by conventional mutual funds. The investor once again profits from capital gains, interest and/or by the dividends issued. The sale of the units or shares also result in a capital gain or loss.

The investor pays a commission upon the purchase or sale of units or shares. Management fees and operating costs are paid from the funds assets.

Due to the highly speculative nature of some commodity pools, you could lose some or all of your investment.

In horse race terms, neither of the above funds are for the chalk player .

Until next time.

Stay on track,

The Hoss

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