Segregated Funds 101: Segregated Funds vs. Mutual Funds

Investing your money always comes with a sense of worry no matter how experienced you are. If you have no experience, that worry gets exponentially greater. A great way to ease the anxiety over investing is to gain a deeper understanding of the different types of investments. Right now, segregated funds are growing in popularity thanks to their many benefits, but some consumers find themselves wondering what are the difference between segregated funds and mutual funds? Here we undertake to explain the differences so that you can go forth into the “investment sunset” with your head held high.

What are segregated funds and mutual funds? Segregated funds are investments held with an insurance contract, kept entirely separate from the assets of the insurance company. A mutual fund is an investment that a group of people pool money into, hiring a manager who invests the money in various stocks, bonds or other securities. Both are professionally managed.

There are several differences between segregated funds and mutual funds. Firstly, segregated funds are sold solely by life insurance companies. You have many of the same choices with a segregated fund as you would with a mutual fund, including bond funds, equity funds and balanced funds.

One major difference between segregated funds and mutual funds is the fact that segregated funds have a maturity date – mutual funds do not. The benefits of a maturity date, be it 15 years for example, is that if you hold the fund until that date, you are guaranteed to get money back. Although the amount varies depending on how the fund performs, although unlikely - unlike mutual funds you don’t stand to potentially lose everything that you invest.

Another fundamental difference between segregated funds and mutual funds is the guaranteed death benefit. Whereas with a mutual fund the estate or beneficiary will receive the market value of the fund only – there are no guaranteed minimums – a segregated fund pays a guaranteed amount to your beneficiary. This means that there is a guaranteed benefit upon your death no matter what the market value is.

A third difference with segregated funds is that upon your death, the benefits are paid directly to your beneficiary, rather than becoming an asset of the estate, which is the case with mutual funds. This also means that typically a segregated fund is protected from creditors, whereas a mutual fund is not. There’s also the possibility that they are private in a segregated fund.

Remember: segregated funds take some of the risk out of investing, so if you are thinking about investing but are unsure which path to take, consider segregated funds. Talk to an advisor about your goals for the future and to get an even better understanding of how segregated funds could be the answer to your investment plans.

For more information about segregated funds vs. mutual funds or to find out more about smart investing tips, please contact Independent Financial Concepts Group by calling 416-849-1653 or visit www.wecoveryou.ca.