What is the difference between mutual funds and segregated funds

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Related Articles. Life Insurance Term vs. Partner Links. Related Terms Mutual Fund Definition A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is overseen by a professional money manager. What Is an Irrevocable Beneficiary?

An irrevocable beneficiary has guaranteed rights to assets in an insurance policy or a segregated fund. What Is an Account in Trust? An account in trust is a type of financial account opened by one person for the benefit of another. Term Life Insurance: Uses, Types, Benefits, and More Term life insurance is a type of life insurance that guarantees payment of a death benefit during a specified time period.

Pooled Income Fund A pooled income fund is a type of charitable trust. Segregated funds also known as seg funds are both an investment and life insurance product. They are offered by Canadian life insurance companies, some financial institutions and several mutual fund firms. Why are they called segregated funds? In addition, segregated funds can be a form of life insurance. If you designate a beneficiary of your segregated funds, this person will receive the funds immediately upon your death.

The proceeds bypass the estate and are probate-tax free. However, they are subject to income tax and capital gains tax, whether they are held in a registered account an RRSP or RIF or a non-registered account.

Mutual funds allow individual investors to purchase a pool of investments that can hold stocks, bonds and other investments.

Mutual funds can vary widely. They might invest in blue-chip, large companies that provide safe investments but little potential for accelerated growth. Or they might hold small-cap startups with the hope that some of these firms will turn out to be the next Shopify or Apple. There are no fees to purchase mutual funds. However, the fund will charge a management fee of between 1 and 3 percent to provide professional money managers to select the investments and cover administrative costs. Both mutual funds and seg funds hold investments in stocks, bonds and other instruments.

There are some important differences. These will have an impact on whether mutual funds or segregated funds are the right choice for you:. You only pay taxes when the money is withdrawn. As we have indicated, the major taxation advantage of segregated funds is that they are a life insurance product.

As such, your beneficiary receives the funds directly without going through probate. There are different kinds of segregated funds, depending on your goals. For example, Sun Life has three options:. You will need to make an overall financial plan and decide whether seg funds or mutual funds or both are best for you. Consider segregated funds as part of your life insurance plan. Age restrictions and other conditions may apply. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.

Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Solutions Magazine ,. Seg funds: are professionally managed can invest in a diversified portfolio offer a wide range of funds to choose from. This provides some unique advantages, including: estate planning and wealth transfer features potential protection from creditors asset protection through death benefit and maturity guarantees.

Key differences at a glance Mutual funds Segregated fund solutions Does my investment have growth potential? Yes Yes Can I invest in industry-leading funds?

Yes Yes Will my investment be exempt from seizure by creditors? Consult a legal advisor to learn more Yes, in certain circumstances.