Mutual Funds vs Segregated Funds

If you have made the decision to invest your money, you may be wondering which option is right for you. Two of the most popular choices among Canadian investors are mutual funds and segregated fund policies. Here is a description of Mutual Funds vs Segregated Funds.
Mutual funds allow investors to pool their money together into a fund that is managed by a certified investment firm. This process diversifies your investments, while limiting exposure to market fluctuations. Mutual funds are also a cost-effective investment option. For many Canadians this makes mutual funds an attractive investment option.
Segregated fund policies work in a similar manner. Like mutual funds, there is a pooling of investments that diversifies your money. However, segregated funds include insurance guarantees that can protect a portion or all your original investment.
Let’s take a deeper look at the differences between the two products.
Advantages of mutual funds
Mutual funds do not offer insurance guarantees like Segregated fund policies. For this reason, mutual funds are cheaper to purchase. Typically, mutual fund’s Management Expense Ratio (MER) will be less than that of segregated funds and for some individuals this makes mutual funds the better option.
Mutual funds also offer a very wide range of different investment options, that allow investors to match their specific risk tolerance level more easily. As an example, if an investor is looking to be more aggressive, there are mutual funds that are tailored towards growth. If the investor wants to be more conservative, there are plenty of options that will be geared towards preserving their capital.
Advantages of Segregated Funds
As discussed earlier, segregated funds offer two types of insurance guarantees. The first guarantee is on maturity. Typically, investors can choose between 75% and 100% maturity guarantee, meaning if the market drops the investor will receive most or all the original investment amount when the policy matures. The other guarantee that segregated fund policies offer are death benefit guarantees. This means your named beneficiaries will receive either the market value or the original investment amount (whichever is higher) at the time of the investor’s death. These guarantees make segregated funds an excellent choice for individuals looking for an efficient way to have their assets passed down to their beneficiaries.
As for estate planning, all segregated fund policies allow the investors beneficiaries to receive the money more quickly without having the assets flow through their estate. This means the assets won’t be reduced by taxes and fees that are associated with the settling of an estate.
Additionally, segregated fund policies offer creditor and liability protection. The investor’s assets within a segregated policy may be protected from creditors, where there is a specific type of beneficiary (such as a spouse or child). It also means that in the event of the investor’s death, their assets can be passed onto beneficiaries without being exposed to any creditors.
Overall, both mutual funds and segregated fund policies are great options for a wide variety of investors. Our team at Prosim Financial is happy to help discuss what option may be right for you and your family and also continue the conversation between Mutual Funds vs Segregated Funds.

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