Segregated funds
What are segregated funds?
Segregated funds are a type of investment made up of equities, bonds or money market securities. They are similar to mutual funds, but they have a major advantage: They offer guarantees that protect the amounts invested against market downturns.
To maintain investor interest, segregated fund assets are managed separately from those of the company, thus the designation "segregated funds".
The main benefits of segregated funds
Capital protection
Segregated funds include an insurance component that protects your investments against market downturns. You have the option of choosing a guarantee that protects 75% or 100% of your investments on contract maturity or death, should the market value of the funds be lower than that amount.
What it means for you:
On contract maturity or death, segregated fund guarantees protect your capital against severe market disruptions such as recessions or economic crises.
Learn more about the guaranteesProtection of investment gains thanks to resets
Resets secure your gains when markets are favourable to protect your investments during market downturns. Depending on the segregated fund series you choose, you can request resets 1 or 4 times a year to make sure the guarantee at death covers the return generated by your investments.
What it means for you:
Regardless of market fluctuations, resets mean that the value of your invested capital is protected and can only increase.
Learn more about the different seriesPossibility of avoiding probate fees
A segregated fund contract makes it possible to designate a beneficiary and therefore avoid paying several fees associated with estate settlement, including those for the probate process to certify the validity of the will.
These fees may vary according to your province of residence and your personal situation.
What it means for you:
The amounts payable are generally paid to your beneficiary(ies) in less than two weeks, which may help avoid probate fees.
Quick settlement in the event of death
The value of the funds is paid promptly to beneficiaries in the event of death. This means that, among other things, relatives do not need to personally take care of the deceased’s financial commitments.
What it means for you:
By avoiding the regular estate settlement process, the payment of assets held in segregated funds is quick and easy. Your loved ones therefore won’t have a long wait before receiving the money.
Protection against creditors
With a beneficiary designation, segregated fund investments are protected from creditors throughout your life and after death.
Under certain conditions.
Please note that if you declare bankruptcy within one year of opening a guaranteed interest fund contract and it is proven that you would not have been able to repay your debts without the transferred funds, the coverage may be invalidated by the insurance company.
What it means for you:
Investments held in segregated funds can be exempt from seizures by creditors in case of bankruptcy or lawsuits, regardless of the series chosen.
This can be an interesting advantage for small business owners and professionals who want to limit their risk of loss in case of bankruptcy, lawsuits, or personal or professional disputes.
Quicker, easier tax returns
All tax calculations are already done on the T3 slip (and the Relevé 16 in Quebec) sent by iA, which makes income tax returns quicker and easier.
Interesting fact: Losses in a segregated fund can be declared at the end of the tax year. You can therefore deduct any losses from your income in order to pay less tax.
What it means for you:
This makes it easier for you to file your tax returns and simplifies the task of your accountant, which can save you accounting fees.
Possibility of a lifetime guaranteed income
With the FORLIFE Series, segregated funds give you access to guaranteed income for life without having to worry about losing capital.
What it means for you:
- Provides a stable and guaranteed source of income, while allowing you access to your capital
- Protects your estate in the event of death
Frequently asked questions about segregated funds
Who might benefit from investing in segregated funds?
Any person who is 18 years old or older who is looking to invest their money into performant financial vehicles, with the peace of mind provided by guarantees that prevent the capital invested from losing value due to market downs.
What are the risks of segregated funds?
First of all, you should know that most investment funds (e.g. mutual, segregated, exchange-traded funds [ETF]) involve the risk of losing money temporarily. The benefit of a segregated fund is that it offers guarantees that protect your capital against severe market downs (at contract maturity or at death). This extra protection does come at a small price, which explains in part their increased management fees compared to those of mutual funds.
It is important that you always respect your risk tolerance when identifying which investment is right for you.
Are segregated funds more tax efficient than mutual funds?
Yes, they are. Segregated funds are the only investment funds where capital losses are allocated to unit holders. You can therefore deduct any losses from your income in order to pay less tax. Plus, it could save you some accounting fees, because the income tax return is made quicker and easier since tax calculations are already done on the T3 slip (and the Relevé 16 in Quebec).
Is a TFSA a segregated fund?
No, they are two different things. A Tax-Free Savings Account (TFSA) is a type of savings plan while segregated funds are a type of investment. Think of it as a big bag (the TFSA) in which you can safely put parcels (the segregated funds investments), ensuring that withdrawals and returns are tax-free.
Can I take money out of my segregated funds?
Yes, at all times. However, know that there are usually withdrawal rules to respect. Transaction or redemption fees or may also apply.
Are segregated funds taxable?
It depends. Gains from segregated funds are not taxable if they are held within a registered plan (such as a TFSA or RESP). If the gains were made in a non-registered account, however, they are subject to tax, like any income or capital gain.
Do segregated funds pay dividends?
Segregated funds can generate dividend income (that are reinvested in the fund) if the underlying investments generate income. Note that dividends, like other types of investment income, are taxable when the funds are held in a non-registered account. You can’t receive cash dividends from segregated funds either.
What is the difference between GICs and segregated funds?
The two products are very different. Guaranteed interest certificates (GICs) are an investment option that offers a fixed, guaranteed interest rate for the duration of the term selected. You know right from the start how much gain you are going to cash in at the end.
Segregated funds, on the other hand, are invested in the markets and the returns will depend on the markets’ performance. However, they come with guarantees at contract maturity or at death to secure the capital invested when markets drop.
Good to know: GIC can only be sold by banks. At iA, we sell Guaranteed Interest Funds (GIFs) , which offer additional benefits that are not available with most GICs, such as quick settlement in the event of death, possible creditor protection and the possibility to redeem them before the end of the contract (fees may apply).
How to invest in segregated funds?
Distributed exclusively by life insurance companies, segregated funds are managed by teams of experts.
Here are the four steps in acquiring a segregated fund:
Talk to an advisor
An advisor can help you make the best choices according to your reality. The advisor identifies needs and collects data, which includes:
• The financial needs analysis (FNA)
• The investor profile
Open an account
According to the results of the FNA and the investor profile, the advisor will propose the investment instrument the most adapted to your situation: RRSP, TFSA, high interest savings account, etc.
Discover the savings plansChoose a guarantee
Still according to your needs, the advisor will propose a product option according of the type of guarantee. Remember, it’s the main advantage of Segregated Funds!
Discover the segregated fund guaranteesChoose the portfolio funds
The final step in selecting a fund category or categories in which to invest according to their characteristics.
Discover the fund categoriesLeaders in segregated funds in Canada
iA Financial Group has been ranked first in net segregated fund sales in Canada since 2016, an enviable position that isn’t the result of chance.
We’ve earned it through the continual hard work of our expert teams who are focused on selecting qualified portfolio managers and closely monitoring fund performance.
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