Segregated funds are similar to mutual funds, but are sold only by life insurance companies.
With segregated funds you have many of the same choices, including:
- Money market funds
- Bond funds
- Equity funds
- Balanced funds
...and so on. If you are not an experienced investor, you may want to get some advice about whether or not segregated funds are a good investment for you.
What makes segregated funds different from mutual funds?
1. Maturity guarantee: Unlike a mutual fund, a segregated fund has a maturity date, such as 10 years. If you hold the fund to that date, you will be guaranteed to get a certain amount of your money back. You may not make money, but you are not going to lose everything you invest, either. The amount of the guarantee ranges from 75% to 100%. Fees may be higher to pay for the guarantee.
Tip: Segregated funds can be good for some long-term investors who want to invest in equity mutual funds but don't like the risk.
2. Guaranteed death benefit: Segregated funds pay a guaranteed amount to your beneficiary if you die. Your beneficiary gets this amount even if the value of the investments in your segregated fund is less.
3. Protection from creditors: This may be important for small business owners, or investors nearing retirement. No other types of investments held in RRSPs and RRIFs are currently protected from creditors across the country.
Tip: This will change if Bill C-55 is passed into law. It will protect your RRSPs and/or RRIFs from being taken on behalf of creditors if you go bankrupt.
Remember: Segregated funds take the risk out of investing in equities
For some people - especially if you are retiring or own a small business - it may be worth the higher fees you will pay.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.