The world of investment choices can be confusing. Do you sacrifice security for higher returns? Or do you take the safe path and take the guaranteed route, locking yourself into low returns? Fortunately for Canadian investors there is another option: Segregated funds.
What are Segregated Funds?
Segregated funds are similar to mutual funds but are only offered by life insurance companies. This allows for the special “insurance” features that can make segregated funds a safer investment and provide added advantages.
Like mutual funds, segregated funds have a wide range of investment choices:
- Equity Funds
- Balanced Funds
- Bond Funds
- Money Market Funds
Features and benefits of segregated funds include:
1. Maturity and Death Benefit Guarantee
Segregated funds allow an investor to invest long term in equities without the risk of losing money due to market volatility, providing they are held until their maturity date. Holding the funds to the maturity date means that you are guaranteed to receive at least 75% to 100% of your invested capital, regardless of market performance.
Death Benefit Guarantee
For investors, the death benefit guarantee avoids having to invest in fixed income instruments to preserve capital in the event of death. Investors can benefit in market growth of equities, safe in the knowledge that on death their beneficiaries will receive the full capital amount invested (with 75% to 100% guarantee).
2. Estate Planning Made Easy
Estate benefits include a confidential wealth transfer through naming a beneficiary for both registered and open accounts. This means that the proceeds are paid directly to the beneficiary(s) and do not flow through the estate. These proceeds can be paid without delay and avoid public disclosure, probate fees, and other costs associated with the settling of an estate, such as legal and accounting fees.
3. Creditor Protection
As a product of a life insurance company, the owner of the segregated fund may name the beneficiary for proceeds at death. This creates the potential that your segregated fund investment may be free from the claims of creditors and potential litigants.
4. Tax Reporting Benefit
Tax information is tracked and reported by the insurer on behalf of the investor, simplifying the annual tax filing process. There is no additional accounting required for reporting fund distributions, transactions, capital gains and/or losses.
For those investors who desire to have guarantees built into their investment portfolio, segregated funds are available for registered and open accounts.
Call me to discuss your individual circumstance and whether this is a good fit with your overall investment strategy.