Initially developed by the insurance industry in order to compete against mutual funds are segregated funds. A lot of mutual fund companies today are in partnership with insurance companies so that investors can be offered with segregated funds. Segregated funds offer some unique benefits not available to mutual fund investors.
Segregated funds offer the following major benefits that are not offered by the traditional mutual fund.
Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Minus any withdrawals and management fees, you will find that there is a 100% guarantee on the investment at maturity or death, though this may differ for some funds, even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.
Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.
Estate probate fees are avoided by segregatd funds upon the death of the investor.
A "frozen option" which allows investors to lock in investment gains is what segregated funds have and this can increase their investment guarantee. During volatile capital markets, this can be a powerful strategy.
The following and less important benefits are also offered by segregated funds:
A T3 tax slip each year-end is issued by segregated funds and this reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.
Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.
Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.
There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.
However, with further market volatility these guarantees could be very worthwhile. Not only that, segregated funds are also offered in most major mutual fund companies.
Segregated funds offer the following major benefits that are not offered by the traditional mutual fund.
Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Minus any withdrawals and management fees, you will find that there is a 100% guarantee on the investment at maturity or death, though this may differ for some funds, even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.
Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.
Estate probate fees are avoided by segregatd funds upon the death of the investor.
A "frozen option" which allows investors to lock in investment gains is what segregated funds have and this can increase their investment guarantee. During volatile capital markets, this can be a powerful strategy.
The following and less important benefits are also offered by segregated funds:
A T3 tax slip each year-end is issued by segregated funds and this reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.
Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.
Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.
There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.
However, with further market volatility these guarantees could be very worthwhile. Not only that, segregated funds are also offered in most major mutual fund companies.
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