BJK Financial Group

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The Benefits of Segregated Funds

Are you a conservative investor who is tired of seeing the returns generated by GIC’s reduced by inflation and taxes? Or are you a small business owner who wants to make sure your personal savings remain protected in the event of bankruptcy? Perhaps you are in poor health and want to make sure your savings are there for your loved ones should you pass on. In all of these cases, you could benefit from investing in Segregated funds this RRSP season.

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.


Segregated 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.

Creditor Protection

Unlike mutual funds, an investment in a seg fund can also be shielded from creditors in the event of bankruptcy. This can be quite beneficial to small business owners. For the creditor protection to apply however, you must name a beneficiary who is a direct family member, and you must be able to prove that your investment in the segregated fund was not made solely for the purpose of shielding assets from creditors.

No Probate Fees

Since a segregated fund is an insurance contract, you do no have to pay provincial probate fees which can be quite high depending on where you live. Your seg fund holdings will pass directly to your named beneficiaries instead of going to your estate.

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