Investing

Segregated Funds: Introduction, Explanation, and Steps to Get Started

Jan 21, 2025

What is a Segregated Fund?

A segregated fund is an investment vehicle often utilized by Canadian insurance companies to manage individual variable annuity insurance products. These funds provide a combination of investment growth potential and life insurance benefits.

Investors should be aware that segregated funds typically come with slightly higher total expense ratios due to their more intricate structure. Additionally, these funds usually have conservative investment objectives, which means their returns are generally more moderate.

KEY TAKEAWAYS:

A segregated fund is an investment product structured as a deferred variable annuity, offering a combination of potential capital growth and life insurance benefits, and is typically issued by insurance companies.
Mainly available in Canada, segregated funds are private contracts between insurers and clients, requiring the investment to be held until the contract reaches its maturity date.
These funds offer stronger guarantees than standard insurance or annuity products, but this added security often comes with higher fees and associated costs.

Understanding Segregated Funds

Segregated Funds are a type of investment structured as deferred variable annuities. These financial products allow investments to grow tax-deferred over time, with payouts starting in the future and returns that fluctuate based on market performance. They are managed in separate accounts by the insurance company and are primarily issued by Canadian insurance companies for Canadian investors. Unlike publicly traded investments, segregated funds are not available on public markets and are structured as contracts, meaning they do not involve ownership of shares or units.

Investors must hold segregated funds until their maturity date. They can choose a fund based on its investment objectives and specific product terms. Segregated funds vary widely in their goals, underlying investment options, and the terms they offer for annuity payouts and life insurance benefits. These features provide flexibility and security, making segregated funds a unique option for long-term financial planning.

How Segregated Funds Work

Segregated funds provide capital growth through investments until a designated maturity date while also offering a life insurance death benefit if the owner passes away before the contract matures. A key advantage over mutual funds is their guaranteed payout, typically ranging from 75% to 100% of the premiums paid, protecting investors from the risk of total loss. This guarantee generally applies to both the death benefit and the annuity payouts.

Once the maturity date is reached, segregated funds begin distributing payouts. Investors can select from various payout schedule options provided by the product.

Key Tip

Segregated funds are classified as insurance products offered by insurance companies. Consequently, the regulatory bodies and laws that oversee segregated funds are typically the same as those governing insurance companies.

Ai Financial for Segregated Funds Investing

Ai Financial
With over 25 years of North American investment expertise, Ai Financial has consistently delivered an impressive average annual return of over 20%, helping countless clients achieve their financial growth goals. Ai Financial offers a few variety of segregated fund options. Ai Financial also offers segregated funds through financial advisors.

Steps to get Started

Speak with an advisor who can help you navigate mutual funds and segregated funds.
Look into how these funds can fit into your estate planning.
Conduct your own research to understand which investment option is right for you.
Contact us anytime! Visit Aifinancial.ca to learn more about our products and services.