Like mutual funds, segregated funds mirror the various type of mutual funds, indexes and ETF portfolios. Segregated fund is the one of the great tool for estate planning and planning for business owners due to it’s giantess such as Creditor protection, maturity guarantee, death benefits guarantees and also bypassing the probate.
Thanks to these features, segregated funds appear to offer higher net returns with limited risk when planned properly for the right people. Theoretically, investors in segregated funds can enjoy high returns if the risky assets invested by the segregated funds perform well. If the assets don’t perform well, investors can at least count on getting most of their initial investment of 75% (i.e. the principal) back after certain period.
Segregated funds work in a way similar to mutual funds. Generally, there are various types of funds adapted to your ability to tolerate risk and to your financial goals (balanced funds, Canadian equity funds, etc.). Your investments will fluctuate based on the market value of the securities that make up the funds.
In general, the investment can be redeemed at any time. However, if you redeem your funds before the maturity date, you may lose the guarantee. Additional fees may apply when you sell your investment.
Segregated fund guarantees are not free of charge – you need to understand the fees and how much you are paying for your investments.
Compared with equivalent mutual fund investments, segregated funds usually have higher fees. This difference is due to the cost of the death and maturity benefits.
Make sure that the person who sells you segregated fund is aware that you need to buy it for your needs such as bypass probate fees, part of state, retirement and investment plans.
Make sure if you are buying the right type of structure, so that when you decided to redeem the funds you are aware how much fees are involved. For instance, if you purchase the DSC type of funds (Deferred Sales Charge) you will have to pay 7% of the fund value as penalty to redeem your funds. Therefore, understand what your fees are and etc.
If you need an assistance to review your funds, we can help you. Our consultants have access to various type of investments and investment companies. We committed to provide tactical strategies and advice based on your needs.