Segregated funds and mutual funds are very similar. It’s just that segregated funds are considered insurance products. They are called such because a person’s investment is ‘segregated’ or separated from the insurance company’s general assets. Like mutual funds, a big pool of money is invested in bonds, stocks or other securities to increase the entire pool’s value.

What do segregated funds and mutual funds have in common?

*Handled by professionals

Segregated funds, like mutual funds, are handled by expert money managers. These are people with the necessary skills and experience in handling money. They’re also able to explain the details of this type of investment to you.

*Gives room for diversification

Both segregated funds and mutual funds allow you to spread your assets among different types of investments. Diversification is a known investment strategy intended to lower the overall risk of a portfolio as it enhances returns.

How different are segregated funds from mutual funds?

*Provide guarantees

Since segregated funds are insurance products, they can guarantee 75-100% of your contributions (excluding withdrawals).The percentage that you’re going to get depends on the term you’re in. You can get this upon contract maturity or death.

*More expensive fees

Because of the guarantees they provide, segregated funds are definitely more expensive compared to mutual funds. A higher guarantee requires a higher Management Expense Ratio (MER).

*No probate fees involved

Given that it’s an insurance policy, a segregated fund’s beneficiary will receive the insurance proceeds without any probate fees involved.

*There’s protection from creditors

This is a feature that concerns professionals and business owners. They do not like their assets to be exposed to creditors as they want to be protected from unexpected bankruptcy or lawsuit. This is one good thing about getting segregated funds. You can actually get potential creditor protection. All you have to do to gain this big advantage is name an irrevocable or preferred beneficiary. The main relationship remains between the annuitant and his beneficiary. There are, however, exceptions to this, so it’s good to consult legal experts first.

In a nut shell, segregated funds are insurance products that provide you the same investment mutual funds present plus the protection that mutual funds don’t have.

Subject to any applicable death and maturity guarantee, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to fluctuations in the market value of the assets in the segregated fund.