“At its core, the group scholarship plan is a scheme that concentrates gains on plans that survive through the contribution period and meet various restrictions. Beneficiaries receiving scholarships receive not only the investment income earned on their own contributions, but also a share of investment income earned in plans that do not result in a claim on the pooled investment income, or in only a partial claim. Payments to these beneficiaries include the grant and bond deposited in their own plans, and other enhancements. Investment income of a group plan becomes available for distribution to beneficiaries of other plans in the same cohort in three situations: First, the subscriber may close a plan and withdraw contributions made to date – an option that exists with individual and family plans as well.

Second, the provider closes a plan when the subscriber fails to make contributions on schedule and fails to make catch-up payments or exercise other options available. Third, when all contributions have been made according to schedule, the beneficiary may fail to qualify for a full scholarship under the rules of the plan, rules that are more restrictive than the rules established by the government. When the investment income in a plan becomes available for distribution to other plans, the grant and bond are repaid to the government.”

Just bad investments .. . and the amazing thing is the people selling these scholarship group RESP plans are not required to be licensed at all – at least those who are selling MF have to be licensed

@mfau: The RESP prospectus referred in this post is from Knowledge First Financial.

@Bargain Hunter: I went the mutual fund route for my own kids. It maybe takes a total of 30 minutes per year to manage the three RESPs. Parents who are uncomfortable with volatility can of course choose to go the GIC route.