The RRSP season is in full swing and Canadians are being bombarded with advertising pitches for various investment products. The other day, I heard a radio commercial for investing in Venture Capital Funds. Labour Sponsored Investment Funds (LSIF), as these funds are called, invest in small private companies by providing start-up or mezzanine financing. Investing in LSIFs results in generous tax credits of up to 35% (on a maximum of $5,000), if held for 8 years.
I think these funds are a lousy choice for most people (especially inside a RRSP). It is true that these funds represent a separate asset class and generate significant tax credits. However, the average annual returns of LSIFs (according to Globefund.com) have been terrible: -1.8% over 3 years, -8.18% over 5 years, 0% over 10 years and -0.64% over 15 years. That really is a lousy record. The funds also charge very high fees (the median MER according to Globefund.com is 3.93%). If these funds were held in a taxable account, they would at least generate a capital loss. The elimination of foreign property rule for RRSPs has removed the last good reason to invest in LSIFs and it is best to avoid them.
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