Knowing the Difference between Segregated Funds and Mutual Funds

Besides the mutual funds offered by banking institutions, which are currently the most popular investment vehicle, investors can also choose the segregated funds offered by insurance companies, which have a number of undeniable advantages.

What are segregated funds?

Segregated funds are insurance products. The premiums you pay on these products are invested into segregated funds administered by fund management companies. Insurance companies then provide additional guarantees associated with segregated funds. As a result, these funds combine the growth potential of investments with the security of insurance.

Segregated funds vs. mutual funds

What distinguishes a segregated fund from a mutual fund? First, let’s look at the things they have in common: both invest in stocks, bonds, and money market funds; have good growth potential; provide investment diversity; and can be purchased under the auspices of either an RRSP or a non-registered investment.

However, segregated funds offer certain advantages not available through mutual funds:

Advantages Segregated Funds Mutual Funds
Payout guaranteed at maturity

YES

NO

Payout guaranteed upon death

YES

NO

Potentially creditor protected

YES

NO

Simplified and prompt estate settlement

YES

NO

Beneficiary designation for non-registered contracts

YES

NO

Building your savings but looking for protection against market downturns

YES

NO

Guaranteed income for life

YES

NO



Guarantee at Maturity: Segregated funds have a guaranteed payout of between 75% and 100% of deposits upon maturity.

Payout guaranteed upon death: Your beneficiaries receive up to 75% of the higher of the guaranteed benefit payable upon your death or the market value of the fund certificate.

Potentially creditor protected: Appropriate designation of one or more beneficiaries protects your funds from potential seizure by creditors.

Simplified estate settlement: Upon your death, all funds payable are distributed directly to your designated beneficiary or beneficiaries and do not become part of your estate, potentially avoiding any applicable probate fees.

These features of segregated funds help you to protect your capital.

In summary, segregated funds offer good potential for both diversification and growth. Given the nature of their guaranteed payouts at death or maturity, they merit serious consideration by investors nearing retirement or seeking to secure their investments.

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