Initially developed by the insurance industry in order to compete against mutual funds are segregated funds. To offer segregated funds to investors, many mutual funds companies today are in partnership with insurance companies. Some unique benefits that are not available to mutual fund investors are offered by segregated funds.
The following major benefits are offered by segregated funds and they are not offered by the traditional mutual fund.
Upon the death of the investor or upon the maturity of the fund, segregated funds offer a guarantee of principal. Minus any withdrawals and management fees, you will find that there is a 100% guarantee on the investment at maturity or death, though this may differ for some funds, even if the market value of the investment has declined. Having a maturity of 10 years after your initial investment are most segregated funds.
Segregated funds also offer creditor protection. If you go bankrupt, then creditors won't be able to access your segregated fund.
Segregated funds avoid estate probate fees upon the death of the investor.
Segregated funds have a "freeze option" allowing investors to lock in investment gains and thereby increase their investment guarantee. During volatile capital markets, this can be a powerful strategy.
Also offered by segregated funds are the following, less important benefits:
Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemptions that were made by the investor. Because of this, calculating your taxes is very easy.
Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.
Allocating their annual distributions on the basis of how long an investor has invested in the fund during the year are segregated funds and this is not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.
There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. There have only been three very aggressive and specialized funds that lost money in the entire mutual fund universe during any 10-year period since 1980. This means that there are extremely low chances that you will be losing money after 10 years. It can cost as much as percent per year in additional fees if you decide you need a guarantee.
But these guarantees can be very worthwhile with further market volatility. Don't forget that most major mutual fund companies also offer segregated funds.
The following major benefits are offered by segregated funds and they are not offered by the traditional mutual fund.
Upon the death of the investor or upon the maturity of the fund, segregated funds offer a guarantee of principal. Minus any withdrawals and management fees, you will find that there is a 100% guarantee on the investment at maturity or death, though this may differ for some funds, even if the market value of the investment has declined. Having a maturity of 10 years after your initial investment are most segregated funds.
Segregated funds also offer creditor protection. If you go bankrupt, then creditors won't be able to access your segregated fund.
Segregated funds avoid estate probate fees upon the death of the investor.
Segregated funds have a "freeze option" allowing investors to lock in investment gains and thereby increase their investment guarantee. During volatile capital markets, this can be a powerful strategy.
Also offered by segregated funds are the following, less important benefits:
Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemptions that were made by the investor. Because of this, calculating your taxes is very easy.
Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.
Allocating their annual distributions on the basis of how long an investor has invested in the fund during the year are segregated funds and this is not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.
There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. There have only been three very aggressive and specialized funds that lost money in the entire mutual fund universe during any 10-year period since 1980. This means that there are extremely low chances that you will be losing money after 10 years. It can cost as much as percent per year in additional fees if you decide you need a guarantee.
But these guarantees can be very worthwhile with further market volatility. Don't forget that most major mutual fund companies also offer segregated funds.
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