What Is a Bullet GIC?

A bullet GIC (BGIC) is a type of guaranteed investm🌱ent contract in which the pr🧸incipal and interest owed to the investor is paid in one lump sum. It provides investors with a typically low-risk means of achieving a guaranteed return.

BGICs are offered by financial institutions such as insurance 🥀companies and 🅷banks.

How a Bullet GIC Works

Background: GICs

A 澳洲幸运5官方开奖结果体🌌彩⛎网:guaranteed investment contract (GIC) is a financial product offered by insurance companies and banks that guar🍌antees a specific rate of return in exchange for an investor's deposits, which the issue𒊎r locks up for a certain period of time.

The insurance company repays the deposits (the principal) with interest according to a schedule specified bಌy the contract. The term of a GIC typically ranges between one and 15 yea𝐆rs.

A GIC appeals to investors as a low-risk investment opportunity and alternative to a savings account or 澳洲幸运5官方开奖结果体彩网:U.S. Treasury securities.

BGICs

A bullet GIC differs from a GIC in that the i💦nvestor is repaid their principal and interest as a lump sum, rather than as a stream of cash flows over time.

BGICs are typically designed to accept a single deposit, usua♐lly $100,000 or more, for a particular time period, generally between three and seven years.

Investors in BGICs often are pension funds and employer-sponsored retirement plans. BGICs can be used to fund 澳洲幸运5官方开奖结果体彩网:defined-benefit retirement plans because they ar🐭e compatible with the timing of plan contributions🐠.

BGICs also can be attractive to individual investors who want to save for a future event, such as col꧙lege for a child.

A BGIC acts much like a zero-coupon bond for accoun🐽ting purposes, though bonds are typically issued by companies to fund operations, while GICs are often issued by insurance companies to fund their 🐻obligations.

Municipal Guaranteed Investment Contracts

ꩲMunicipal governments are another major issuer of guaranteed investment contracts. In order to support local infrastructure projects, and the financial stability of local go🙈vernments, interest earned on such contracts is not usually taxed by the federal government.

This tax-free feature makes municipal guarantee൲d investment contracts popular with investors looking to lower their tax bills. But it also makes them susceptible to being involved with so-called yield burning schemes, which defraud the federal government of its rightful tax proceeds.

Yield burning occurs when securities firms sell bonds or guaranteed investment contracts at inflated prices so that the yield on those bonds, and taxes owed on proceeds, ap🌟pear lower.

GICs Purchased at Fair Value

The IRS has issued guidelines for investors to rely on to make sure they have bought their guaranteed investment contracts at fair value. Regulation Section 1.148-6(c) dictates that guaranteed investment contracts must be purchased at fair value if the proceeds are to be earned tax free.

Investors in municipal guaranteed investment contracts, therefore, should take great care to keep records of the bidding process to prove that they have bought the instruments at f🐽air value. Such records include t🃏he bid sheet and any material terms of the purchase agreement.

The Bottom Line

Bullet GICs are guaranteed investment contracts that repay principal and interest in a lump sum on a future date specified by the contract. They are attractive to some investors, especially those 🌟interested in protecting their wealth, for the fixed rate of return, preservation of capital, and protection from market volatility.