Segregated Funds
Segregated Funds, or Seg Funds, blend investment growth with life insurance security. Like mutual funds, they pool money for diversified investments. However, segregated funds offer insurance guarantees such as principal protection and death benefits, ensuring investors’ capital is protected from market fluctuations.
Segregated funds provide growth potential and downside protection, appealing to investors. They offer principal protection, typically guaranteeing a portion of the initial investment. Reset options enable locking in gains, enhancing investment value. Additionally, they may offer creditor protection, providing peace of mind for asset protection. Segregated funds blend investment growth and insurance protection, offering a balanced approach for investors.
Segregated Funds Features
Creditor Protection:
- Segregated Funds may offer potential creditor protection, as the insurance component may shield the investments from creditors in certain situations. This can be advantageous for investors concerned about asset protection.
Death Benefit Guarantee:
- The Death Benefit Guarantee ensures the investor’s beneficiaries are guaranteed to receive either the original investment amount or the market value of the investment, whichever is higher, upon the investor’s death. It provides assurance that the investor’s heirs will receive a minimum payout, even if the market value of the investment has declined.
Maturity Guarantee:
- The Maturity Guarantee ensures that the investor will receive a minimum payout upon the maturity of the segregated fund, typically equal to the original investment amount or a predetermined percentage of it. It protects investors from potential losses in the event of poor market performance over the investment period.
Principal Protection:
- The Principal Protection feature ensures that a certain percentage of the initial investment, typically ranging from 75% to 100%, will be returned upon maturity or death, regardless of market performance. It offers investors a level of security by safeguarding a portion of their capital against market downturns.
Reset Options:
- Some Segregated Funds offer reset options that allow investors to lock in investment gains periodically. With these options, investors can reset the guaranteed value of their investment to capture market growth, providing opportunities to increase their principal protection over time.
Segregated Funds vs. Mutual Funds
Segregated Funds:
- Include insurance component offering guarantees like principal protection and death benefits.
- Offer a wider range of investment options compared to some mutual funds.
- Offer reset options to lock in gains periodically.
- Provide downside protection and potential creditor protection.
Mutual Funds:
- Lack insurance component and guarantees.
- Typically provide fewer investment options and less diversification.
- Generally do not offer reset options for locking in gains.
- Subject to market fluctuations without downside protection.