MIC stands for Mortgage Investment Company. An MIC invests solely in mortgages, often for customers who do not meet the standards for qualification from banks. This does not mean they’re necessarily riskier, but rather there is some impediment to their application they are unable to resolve without outside financing.
Owning shares in a MIC enables investors to participate in income from a diversified and secured pool of mortgages. Shares of a MIC are eligible investments under the Income Tax Act (Canada) for RRSPs, RRIFs, DPSPs, RESPs and TFSAs. The rules for MICs, which are flow-through instruments (meaning that tax is not paid by the company, only its investors), are found in the Tax Act.
Once an investor’s funds have been deposited into the MIC, the management team selects mortgages to fund with the new investment. Day-to-day administration of the portfolio includes: receipt and posting of mortgage payments, funding new mortgages, renewal of existing mortgage loans, property insurance and tax follow up, maintaining amortization schedules and bank records for the portfolio.
This also requires maintaining an appropriate amount of cash within the portfolio so that existing investors can make redemptions of their principal amount during the year. The amount of cash on hand varies throughout the year and thus redemptions are subject to notice as explained in the offering memorandum.