June 13, 2016

Are segregated funds right for you?

By Brenda Spiering

Looking for an investment option that can help you sleep at night? Segregated fund products can guarantee you’ll get back some or all of the money you invest.

What are segregated funds?

Segregated (seg) fund products, available exclusively through insurance companies, provide the growth potential of market-based investments with the benefits of an insurance contract. They first came into popularity over 20 years ago, when interest rates began to fall and conservative investors turned to them as a secure alternative to GICs (guaranteed investment certificates). They continue to provide a safe way to grow your assets while providing you with some protection from market downturns.

Are segregated funds a good investment?

Sadiq Adatia, Chief Investment Officer, Sun Life Global Investments, says, “98% of Canadians surveyed as part of the 2015 Sun Life Retirement Now report said it’s important to have some form of guaranteed income in retirement. At the same time, Canadians are living longer than ever before and many are underestimating their longevity and underfunding their retirement.”

He says, “Seg fund products can offer greater peace of mind for those looking to participate in the market but wanting the reassurance of insurance guarantees to help them sleep better at night.” They’re particularly suitable for those who are:

  • Seeking enough return on their investments to reach savings goals.
  • Looking for a broad range of quality investment options.
  • Building their savings but looking for protection against market downturns.
  • Seeking insurance benefits, including prompt estate settlement and guarantees.
  • Looking for guaranteed income for life.

Segregated funds vs mutual funds

Seg fund products have some similar features to mutual funds in that they can hold a range of assets and enable you to benefit from holding a diverse mix of investments. They differ in that they offer the following unique benefits:

  • Maturity guarantee: Even if the value of your investment declines, you are still guaranteed to get back 75% to 100% of the money you have deposited, less any withdrawals, in either 15 years or at age 100.*
  • Death benefit guarantee: Seg fund products offer a 75% or 100% death benefit guarantee that can protect the value of your estate. The greater of your market value or death benefit will bypass probate and flow directly to your beneficiaries.*
  • Potential creditor protection: Small business owners and entrepreneurs can benefit from the fact that, under provincial insurance legislation, seg fund products may offer protection against creditors in the event of a bankruptcy.

Segregated fund products also provide a variety of investment options to meet the needs of people in specific life stages:

  • Competitive fees: In the past, seg funds have typically been more expensive than mutual funds. But some of today’s seg funds come with lower maturity and death benefit guarantees and carry management fees not much higher than standard mutual funds.
  • Lock in market gains: Some seg fund products provide the option of resetting the maturity guarantee up to several times a year. If your funds go up in value, you can lock in a higher guarantee.
  • Guaranteed income options: Looking to fund your retirement? Some seg fund products are designed to function like an annuity and provide you with a guaranteed income for life.

A financial advisor can help you learn more about segregated funds and determine which products may be right for your particular needs and goals.


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