Fixed Income

Stripped Bonds ("Strips")

Stripped Coupons are interest payment coupons detached from government bonds. Residuals are the bonds without their interest coupons. Both are sold as individual investments known as "Strips". Strips are always sold at a discount and mature at face value. The longer the term to maturity, the deeper the discount. The difference between the purchase price and the face value is your interest income.

Strips are ideally suited for RSPs, RRIFs and RESPs because you can lock in attractive rates for up to 30 years and eliminate reinvestment risk over the term of your investment. Like all bonds, you know exactly how much your investment will be worth at maturity and how much income you will earn. But with Strips, you also reap the benefits of a true compounding yield, so a relatively small initial investment goes a long way. They are particularly effective when you purchase them with staggered maturity dates, so that you create an income stream that meets your needs.

Because the income you earn with a Strip is deferred, you should seek tax advice before holding them outside a registered plan such as an RSP, RRIF or RESP.

Strips generally have higher yields than ordinary bonds of similar terms and credit quality. Even if you normally hold your investments to maturity, it is nice to know that Strips are fully marketable and can be sold at market value at any time.

Common Characteristics

Dollars to Invest/Time Horizon

Risk/Return

Liquidity

Income

Key Benefits

• Government of Canada Strips offer the highest guarantee of principal available of any investment sold in Canada, regardless of the size of the investment.
• Fully guaranteed principal and return when held to maturity.
• True compounding effect.
• High degree of liquidity.
• Low minimum investment required.
• RSP/RRIF eligible.