Segregated funds vs. mutual funds: how do they compare?
Two great investment options with distinct differences.
Many investors have heard about mutual funds and the wealth potential they have as an investment. Fewer know about segregated fund solutions (seg funds) and their unique features and advantages.
Like mutual funds, seg funds are pooled investments. They combine the money of many investors, creating economies of scale and giving you access to investment opportunities that might not be available otherwise. Seg funds:
- are professionally managed
- invest in a diversified portfolio
- offer a wide range of funds to choose from.
Unlike mutual funds, segregated fund contracts are insurance products, available only from an insurance company. This provides some unique advantages, including:
- estate planning and wealth transfer features
- potential protection from creditors
- asset protection through death benefit and maturity guarantees.
Key differences at a glance
| Mutual funds | Segregated fund solutions | |
| Does my investment have growth potential? | Yes | Yes |
| Can I invest in industry-leading funds? | Yes | Yes |
| Will my investment be exempt from seizure by creditors? | Sometimes. Consult a legal advisor to learn more | Yes, in certain circumstances. Consult a legal advisor to learn more |
| Are there estate planning advantages? | No | Yes. As long as a beneficiary other than the estate is named, the death benefit proceeds of your segregated fund go quickly and directly to your beneficiaries upon your death – without the delays and expense of settling your estate. |
| What’s the cost? | The costs associated with mutual funds can include management fees, operating costs, commissions, trailing commissions and applicable sales tax. Some funds might also include a charge for early withdrawal. | Yes. In addition to the fees associated with mutual funds, the guarantees offered by segregated funds are an additional cost of insurance. A contract might also include a charge for early withdrawal. |
Segregated fund contracts are offered by insurance companies and are governed by life insurance legislation. Mutual funds are offered by investment management firms and are governed by securities legislation.
What’s the right investment for you?
Both mutual funds and segregated funds are excellent choices for long-term investing and building your wealth. The choice that’s right for you depends on where you are in your investment journey, your investment style, and your financial goals. Your advisor can help you find a solution that meets your needs.
© 2020 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value.
