Mutual Funds or Segregated Funds – Anthony M. Talarico

Posted 11 February 2013 by in Business Now

Anthony Talarico Mutual Funds or Segregated Funds

Anthony Talarico

THUNDER BAY – Business – Mutual funds have been the investment vehicle of choice for many of us. They allow us to invest in a variety of different asset classes.  Segregated funds are similar in the fact that they allow you to invest in the same asset classes. But they also pose many key differences.  The question is which is right for you?

Mutual Funds or Segregated Funds

Comparing the similarities

Both investment vehicles are used for the same purpose; to allow investors to pay into a fund that allows them to diversify their assets. 

These types of assets include money market funds, bond funds, equity funds, or a combination of all of those funds and both are able to earn interest income, dividend income, and capital gains income. 

You are able to invest in either of these funds through your RRSP (Registered Retirement Savings Plan), your non-registered savings plan, and your TSFA (Tax Free Savings Account).  However, where mutual funds can be purchased from any bank or investment company, segregated funds are only available through life insurance companies.

Showing the differences

Now that we’ve compared the two funds in terms of their similarities, let’s compare their differences.  Mutual funds offer no guarantees on investment performance, whereas segregated funds offer guarantees at death and at maturity of between 75% and 100%.  In the case of death to the account holder, segregated funds beneficiaries would receive the guaranteed death benefit or the market value, whichever is greater.  Mutual fund beneficiaries or the estate would receive the market value only, with no guaranteed minimums.  Segregated funds offer probate and creditor protection which means the minimum guarantees or market value get paid directly to the named beneficiary and avoid the estate administration process and the cost of probate fees.  Mutual funds proceeds at death are subject to the estate, administration process and legal fees where it could take some time before the estate can distribute the mutual funds. 

So, which makes sense for you?

Mutual funds make sense for an individual or businesses who want a wide variety of specialized fund choices for their investments, and for those investors who want increased potential returns and are willing to give up the minimum guarantees.

Segregated funds make sense for an individual or businesses that are approaching retirement and are looking to leave money to family or loved ones.  Those investors who want to invest aggressively in more risky assets but also want the security of guarantees.  They also make sense for those individuals or business owners who want creditor and probate protection in the case of death.

The Bottom Line

Both types of funds have their benefits and pitfalls depending on who you are, and what you’re looking for out of the investment.  When deciding between the two, it is always important to discuss your options with your financial advisor.

Anthony M. Talarico
Financial Security Advisor

Freedom 55 Financial

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Anthony M. Talarico Financial Security Advisor W: 807.343.4788 ext. 4248 C: 807.472.6092