Segregated Funds
Segregated funds combine the growth potential of mutual funds with capital guarantees, estate protection and creditor protection — a unique investment in Canada.
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What is a segregated fund?
At first glance, a separate fund looks like a mutual fund This is a pool of investments managed by professionals. However, segregated funds are actually... life insurance contracts which invest in a basket of assets, offering both growth opportunities and guarantees on capital and death benefits.
This dual nature — investment and insurance — is what makes segregated funds unique in the Canadian financial landscape, with advantages that mutual funds simply cannot offer.
Capital guaranteed
Guarantee of 75% or 100% of your initial investment at maturity and in the event of death
Direct succession
Direct payment to the beneficiaries, without going through the inheritance process
Creditor protection
Assets potentially protected in the event of bankruptcy or insolvency
The guarantees of segregated funds
Segregated funds include two types of guarantees, available at levels of 75% or 100% of the invested capital:
Guarantee at maturity: Protects a portion of your initial investment after a specified period (usually 10 to 15 years). Even if the market value has decreased, you receive the guaranteed amount.
Death benefit: It ensures that your beneficiaries will receive at least the guaranteed amount, regardless of the fund's market value at the time of death. This is the component that makes the segregated fund an insurance contract.
Tips
Some segregated fund contracts offer a "reset" option that allows you to lock in accumulated gains and increase the guaranteed amount. This can be particularly advantageous after a period of strong market growth.
Simplified inheritance
One of the most powerful advantages of segregated funds is estate planning. Since it's an insurance contract, you can designate a beneficiary directly. In Quebec, unlike in mutual fundsSegregated funds allow for this designation.
Result: upon your death, the funds are paid out. directly to the beneficiary — without going through the inheritance process, without homologation fees, without legal delays and in complete confidentiality.
Protection from creditors
When an irrevocable beneficiary is designated, or when the beneficiary is an immediate family member (spouse, child, parent), segregated funds can be protected from creditors in the event of bankruptcy. This is a particularly sought-after advantage for professionals, entrepreneurs, and the self-employed.
Segregated funds vs. mutual funds
The mutual funds They offer diversification and professional management, but without capital guarantees or estate protection. Here are the main differences:
Capital guarantee: Segregated funds offer 75% or 100% — mutual funds offer no guarantee.
Succession: Segregated funds allow the designation of a beneficiary (outside of the estate) — mutual funds go through the estate in Quebec.
Creditor protection: Possible with segregated funds — not with mutual funds.
Costs : Segregated fund management fees are slightly higher due to the cost of insurance guarantees.
For whom are segregated funds suitable?
Cautious investors: You want to participate in market growth while protecting your capital against declines.
Estate planning: You want to pass on your assets quickly and easily to your loved ones, without the complications of inheritance.
Professionals and entrepreneurs: You need creditor protection to safeguard your personal assets.
Retirees: You are looking to secure your retirement savings while maintaining potential returns.
Eligible accounts
Segregated funds can be held in a TFSA, an RRSP, an RESP, a RRIF or a unregistered accountThe guarantees apply regardless of the type of account.
Costs and considerations
The management fees (MERs) of segregated funds are generally higher than those of mutual funds comparable — the difference covers the cost of insurance coverage. That's the price of the security these products offer.
Partial withdrawals can proportionally reduce coverage. It is essential to fully understand the terms of the contract before making a withdrawal.
Everything you need to know about segregated funds
A segregated fund is a life insurance contract that invests in a basket of assets, offering growth opportunities with guarantees on capital (75% or 100%) and death benefits.
Segregated funds offer capital guarantees, estate protection (beneficiary designation in Quebec) and potential protection against creditors — advantages absent from mutual funds.
You choose a guarantee of 75% or 100% of your invested capital. This guarantee applies at the contract's maturity (10-15 years) and upon death, regardless of the fund's market value.
Yes, when an irrevocable beneficiary or an immediate family member is designated, segregated funds can offer protection from creditors in the event of bankruptcy.
The funds are paid directly to the designated beneficiary without going through the estate — no probate fees, no legal delays and in complete confidentiality.
Yes, the management fees are slightly higher due to the integrated insurance guarantees. The difference covers the cost of protecting your capital.
A partial withdrawal proportionally reduces your capital and death benefits. It is important to understand this impact before proceeding.
Some contracts allow you to "lock in" your gains by increasing the guaranteed amount to the current market value. This is advantageous after a period of strong growth.
Segregated funds can be held in a TFSA, RRSP, RESP, RRIF, or a non-registered account. The guarantees apply regardless of the account type.
They are particularly well-suited to cautious investors, estate planners, professionals and entrepreneurs, and retirees. An advisor can assess whether this is the right choice for you.
Yes, withdrawals can have tax implications depending on the type of account (registered or not). It is recommended to consult an advisor before proceeding.
Absolutely. Segregated funds fit into a diversified portfolio alongside mutual funds, GICs and other investments to balance growth and security.
Combine growth and security
Segregated funds offer a unique way to protect your capital while participating in market growth. Our advisors can help you determine if this product is right for you. investment strategy.
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