Girard Financial Services

Girard Financial Services

Phone: 250 564 0262

Fax: 250 563 1695

Seg Funds vs Mutual Funds

The basic differences between segregated funds and mutual funds are shown in the following table, however, more important differences are revealed if you read further.

Benefit Seg Funds Mutual Funds
Maturity Guarantee Yes No
Death Guarantee Yes No
Creditor Proofing Yes No
Probate Protection Yes No
Insurance Protection Yes No

Mutual funds are regulated under the provincial securities regulators and segregated funds are regulated by the provincial insurance officials. Mutual funds are offered through a prospectus filed with the provincial securities commission and segregated funds are offered through an information folder.

Like mutual funds, the segregated fund policy holder has no ownership rights in the assets of the fund. They remain the property of the insurance company. Segregated fund units and mutual fund shares are units of value, where the policy holder owns an interest but not a piece of property. According to the market value of a specified group of assets, the insurance company must maintain separate funds with separate assets for each fund.

Segregated Funds are actually variable deferred annuity contracts with insurance protection in the event of death. It is this insurance component that brings together many of the benefits of segregated funds. At death, proceeds of a segregated fund can pass directly to a named beneficiary, and are not subject to creditor's claims, probate, lawyer's or executor's fees. As long as a preferred beneficiary is designated, creditor protection exists during the policy holder's lifetime even if a bankruptcy occurs. Mutual funds don't have this protection, since, upon death, they become part of the deceased's estate and are subject to taxes, legal, executor and probate fees.

Segregated Funds offer guarantees at maturity or death on the limit of potential losses - normally 75% of original deposits, less any withdrawals, are guaranteed which makes them an attractive alternative for the cautious and/or long term investor. No such guarantees exist for mutual funds and it is possible to have little or nothing left at death or when the funds are needed.

If you purchase non-registered mutual funds towards the end of a calendar year, you could pay tax for a year's worth of capital gains even though you did not own units for a whole year. With segregated funds, income is allocated monthly so you don't have to pay tax on gains that arose before you owned units.

Non-registered segregated funds have an additional tax advantage over mutual funds. If a segregated fund looses capital in a given year, the unit holders can claim the capital loss on their taxes and offset any capital gains made on other investments. Taxation rules allow the allocation of capital gains or losses without cashing in the units held. Mutual funds do not have the ability to allocate. They distribute gains or losses and a loss cannot be distributed. The only way to declare a loss with a mutual fund is to sell the units held.

Subject to the applicable death and maturity guarantees, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to fluctuations in the market value of the assets in the segregated fund.

Segregated Funds are only available to Canadian residents. Persons resident or located in other countries are not eligible to purchase these products or associated services. Within Canada, the information on this web site is not intended to be construed as an offer to sell any insurance products in the province of Quebec.