Segregated Fund Benefits
What are they?Segregated funds (or “seg funds”) are basically the insurance industry’s version of a mutual fund…with a few twists. Both mutual and seg funds are pooled investments where the investor deposits money with a professional money manager in return for units of the fund. However, there are a few key benefits to seg funds that you can’t get with their mutual fund counterparts.
GuaranteesSegregated funds are technically insurance products, and therefore must offer insurance protection in the form of guarantees. There are two types of guarantees – a guarantee at maturity, and a guarantee at death. When you invest in a seg fund, you get a maturity date (generally at least 10 years from the date of investment). On this date, you are entitled to the greater of the maturity value, which is between 75%-100% of your initial investment, or the actual market value of your fund. The guarantee at death provides the same benefit at the death of the annuitant, regardless of whether it occurs 10 years or 10 days after the initial investment.
Every insurance company has different ways of calculating the guarantees. Most companies will also allow you to reset the guaranteed value if your investment performs well. It is important to make sure you know the details of your particular fund guarantees before investing.