Segregated Funds Explained

Segregated funds also commonly known as Guaranteed Investment Funds (GIFs) were introduced to the Canadian markets in the 1960s. They have grown enormously in popularity since about 1998. Segregated funds are an exclusive Canadian insurance investment that gives conservative investors an opportunity to invest in products, such as higher risk mutual funds while ensuring investors will receive between 75% and 100% of their principal at maturity. In fact, there are many investment choices available with segregated funds, ranging from those that are low risk to those that are quite high. The guarantee to return 75% to 100% of principal invested becomes more important as risk increases.

Segregated funds are an investment structure in which money from investors is pooled into a fund. They are called “segregated,” because the money is segregated from the other assets of the insurer. Segregated funds, like annuities, are a life insurance product and are only sold by those advisors who have life insurance licenses. These advisors can be found in investment dealers, brokerages, independent financial planning companies, and insurance companies. Not all advisors are licensed to offer segregated funds.

Segregated funds can be held with both non-registered and registered accounts; however, in the case of registered plans such as RRSPs and RRIFs, the contract owner and annuitant must be the same person.

Segregated funds are sometimes compared, erroneously, to mutual funds. There are a number of very significant differences between the two products. One of the most important is the 75% to 100% guarantee provided by segregated funds at maturity.  Guarantees come as a maturity and a death benefit guarantee; mutual funds, of course, provide no guarantees of any type. In addition, in some segregated funds, reset features are available to lock in profits.

Segregated funds provide investors with the ability to invest in funds managed by an insurance company or in funds that are sold by insurers that mirror an underlying mutual fund. There are many funds available, ranging from highly aggressive funds through to the safety of money market funds. The wide variety of choices means that an investor should be able to find an investment or fund that aligns with his or her investment objectives and risk tolerance. This is a decision to be made in association with a licensed insurance advisor.

When you purchase or invest in a segregated fund, the fund is required by regulation to provide you with information about the fund and contract in the form of an information folder, a summary fact statement, and financial statements. The information folder is the equivalent of the prospectus you would receive if you were buying a mutual fund and will detail many important aspects of the fund, including information and details on factors affecting maturity values, death benefits, reset features, fees and commissions and much more.  Segregated funds unit values fluctuate in value and redemptions or sales can be made at a loss. 

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