MUTUAL FUNDS vs SEGREGATED FUNDS
How a Segregated Fund Differs from a Mutual Fund
A segregated fund provides a minimum guarantee (75% to 100%, but the investor must maintain her/his fund for 10 years) of a return of invested capital. No such guarantee exists for a mutual fund.
After 10 years, the segregated fund policyholder can turn it into an annuity, or whatever terms the insurance company accepts; the person could also take a lump-sum payment. Nothing of the kind exists for mutual funds, because they have no guarantees.
The policyholder has "no ownership" rights in the segregated fund asset; as a 'unit of value', the fund remains in the property of the insurance company. Whereas, with mutual funds, the owner-investor owns his/her fund units and can do with them as he/she pleases.
Technically, the value of segregated funds must be computed at the end of each month, but most insurance companies now do it at the end of each business day. The value of a mutual fund is computed daily.
Where an insurer holds a segregated fund, the policyholder shares in the earnings of the fund, based upon the length of time during the calendar year the policyholder holds "interest" in the fund.
The segregated fund is offered through an insurance or annuity contract; a mutual fund is offered through a prospectus. Make sure you carefully read the contract; it would be even more prudent of you to hire the services of a financial advisor to assist you here.
Unique Advantages of a Segregated Fund
The maturity guarantee on the original invested capital provides you with the security and equity investment investors require
Segregated funds are exempt from probate (will) fees (not so with mutual funds)
Because segregated funds are regulated by the Life Insurance Companies Act, named beneficiaries are protected from creditors
Segregated funds are protected, even if the insurance company collapses (e.g. Confederation Life) by ComCorp, of up to $60,000
Most segregated funds are RRSP eligible, thus, subject to the present RRSP rules and regulations