Flow-through shares are designed to encourage people to invest in growing sectors of the Canadian economy.
In Canada, companies in sectors like mining and resources can deduct exploration and development expenses. They are allowed to pass on the tax deduction to investors through a special type of common share called a flow-through share. When you buy flow-through shares, your money is locked in for up to 2 years – you can’t get your money out for any reason.
Where to buy flow-through shares
You can buy flow-through shares from an investment firm or directly from the company that issues the shares. You can also buy them through limited partnerships or mutual funds, which offer a diversified portfolio of shares with professional investment management.
Ask about fees: Before you invest, find out about fees. You may have to pay a sales commission to your adviser and fees charged by the portfolio manager.
3 key risks
Offered by new, small companies – These companies are often in the exploration stage and aren’t yet making a profit.
Speculative investment – It can take years for a mining or resource company’s exploration work to pay off with a find – if it finds anything at all.
Holding period – Flow-through shares have a holding period of up to 2 years. You can’t get your money out during this period, no matter how the company is doing or what you need the money for.
Flow-through shares also have similar risks to common shares. Learn more about these risks.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca