87% of Canadians want investments that grow and guarantee their principal. No one likes to lose money. Yet most are unfamiliar with what Segregated Funds offer. In a nutshell, Segregated Funds are like mutual funds that are offered by Insurance companies and have principal guarantees.
Much like Mutual Funds, Segregated Funds offer a variety of investment options from a variety of investment managers. Everything from bond funds, to stocks and specialty funds to suit all levels of investor tolerance and needs. Segregated funds are offered as non-registered savings, RRSP, TFSA and RESP accounts.
The primary difference between Mutual Funds and Segregated Funds is Segregated Funds offer a variety of principal guarantees ranging from 75% to 100%, ensuring the monies originally invested is not lost. In addition to principal guarantees, some Segregated funds also offer income guarantees. To qualify for income guarantees, there are usually minimal holding periods. It is best to check with a licensed insurance advisor to understand the terms and requirements for the various guarantees being offered.
While Segregated Fund costs are usually a bit higher than Mutual Fund fees, these may be largely offset by the fact that Segregated Funds are not subject to Estate Taxes and can be passed on to heirs without taxes. They are a very effective estate planning tool. In addition to bypassing probate fees and estate taxes, Segregated Funds can also be creditor proof which can be advantageous for self-employed person.
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