1. What is a segregated fund?
A segregated fund is an insurance product exclusively distributed by insurance companies. It is similar to a mutual fund but provides, among other features, protection against market downturns, by ensuring 75% to 100% of the invested amount at maturity or death.
For some clients, this protection, which is not available for mutual funds, is a significant advantage as it limits the risk of loss.
2. Why choose segregated funds over mutual funds?
In addition to capital protection at maturity and at death, segregated funds offer many unique advantages, including:
- No probate fees for estate settlement
- Protection against creditors in case of bankruptcy or lawsuits
- Protection for gains, thanks to resets
- Simplified tax returns for investments
- Quick estate settlement thanks to beneficiary designation
Some fund series also offer the possibility of guaranteed income for life.
3. Who are segregated funds for?
Segregated funds are for people of all ages. However, they can be a particularly interesting option for:
- People approaching retirement who want to protect their retirement savings
- People who want to simplify the transfer of their estate to their heirs
- Self-employed workers or small business owners who want protection in case of bankruptcy or lawsuits
- Anyone looking for financial peace of mind
4. Do segregated funds offer good potential for capital growth?
Yes! As with mutual funds, the growth potential depends on the funds you invest in, based on your investor profile.
In any case, to optimize your growth potential, the most important things you can do are:
- Get good advice and invest based on your investor profile
- Invest in well-managed funds
- Diversify your investments
5. Is it possible to avoid certain fees by investing in segregated funds?
Yes. The advantage of designating a beneficiary means that you won’t have to pay certain fees related to estate settlement (such as probate fees, professional fees and legal fees) when transferring money out of a segregated fund.
Based on your province of residence, these fees can add up to a significant amount and make a big difference in the amount of inheritance left to your loved ones.
6. What is the management fee breakdown for segregated funds?
The management fee breakdown is exactly the same as for mutual funds (management fees, advisory service, taxes, etc.). The only difference is regarding fees for benefits that segregated funds provide. This portion of the fee varies based on the type of fund and the series (guarantee) chosen.
You may also be able to take advantage of reduced fees thanks to preferential pricing that applies once your assets reach the threshold for eligibility.
Questions about segregated funds that are specific to your personal situation?
Contact a financial security advisor. Our financial security advisors can answer all your questions and guide you in the right direction.