Segregated Funds & Investment Solutions, Explained
A segregated fund invests like a mutual fund but carries an insurance contract’s guarantees. Here is how the guarantees work and when they are worth the extra cost.
What a segregated fund actually is
Everything to know about segregated funds
Who it is for
- Investors who want market growth with some protection
- People planning an estate who want to name beneficiaries
- Business owners and professionals interested in creditor protection options
- Retirees who want guaranteed income options
How it works
- You invest in funds offered by an insurance company
- The contract includes guarantees on maturity and death, often a set percentage of your deposits
- You can name a beneficiary, which may allow the proceeds to pass outside the estate
- Some contracts add guaranteed income features
What affects the cost
- Management fees are usually higher than on similar mutual funds
- Guarantee levels affect the cost
- Fund choices
- Rules on withdrawals and resets
Common mistakes to avoid
- Not asking what the guarantee covers
- Ignoring the higher fees
- Withdrawing in a way that reduces the guarantee
- Treating it as risk free
A retiree places part of their savings in a segregated fund with a guarantee, so the family is protected if markets fall early. Illustration only.
Questions people ask
Are segregated funds safe?
They can reduce risk through guarantees, but values can still fall. Read the contract to see what is guaranteed.
Do they cost more?
Often yes, because you pay for the guarantee, but the right fit depends on your goals.
Do they avoid probate?
If you name a beneficiary, proceeds may pass outside the estate, subject to provincial rules.
Segregated funds vs. mutual funds
| Feature | Segregated Fund | Mutual Fund |
|---|---|---|
| Maturity/death guarantee | Yes, typically 75-100% | No |
| Bypasses probate (named beneficiary) | Yes | No |
| Potential creditor protection | Yes, in many cases | No |
| Management fees | Higher, reflects the guarantee | Lower |
| Reset options | Some contracts allow locking in gains | Not applicable |
Illustrative guarantee vs. fee tradeoff
Common mistakes
- 01 Choosing a segregated fund purely to chase the guarantee without understanding the extra fee is paying for insurance, not investment performance.
- 02 Naming your estate instead of a person as beneficiary, which cancels the probate-bypass benefit.
- 03 Not comparing the maturity guarantee’s actual timeline (often 10+ years) against your real investment horizon.
- 04 Overlooking creditor protection value for business owners and professionals facing liability exposure.
- 05 Assuming all segregated fund contracts are the same, guarantee percentages, reset options, and fees vary meaningfully between insurers.
Investor Profile
Answer a few questions to see what kind of investor you are and what risk level fits you.
Diversify and Protect
See how spreading your money across investments can help smooth out the ride.
Time to Recover from a Bear Market
Understand how long it can take to recover from a market drop, and why guarantees matter.
Stay Invested
See what missing just a few of the best market days can do to long-term returns.
Frequently asked questions
Are segregated funds only for wealthy investors?
No, they are commonly used by business owners, professionals concerned about liability, and anyone who values estate simplicity or a guaranteed floor, at a range of investment amounts.
What happens if the market drops right before maturity?
The maturity guarantee ensures you receive at least the guaranteed percentage of your deposits (minus any withdrawals), regardless of market performance at that date, subject to the contract’s specific terms.
Is the creditor protection guaranteed?
Creditor protection depends on your province, your relationship to the beneficiary, and the specific circumstances, it is not automatic in every case, so this should be confirmed as part of your planning, not assumed.
Can I lock in investment gains along the way?
Many segregated fund contracts offer a reset feature that lets you lock in gains periodically, which restarts the guarantee period at the new, higher value.
How do the fees compare to a regular mutual fund?
Segregated fund fees are typically higher than a comparable mutual fund, reflecting the cost of the insurance guarantee, the decision comes down to whether the guarantee and estate features are worth that extra cost for your situation.
Wondering if segregated funds fit your plan?
Manpreet can walk through the guarantee, fee, and estate tradeoffs based on your actual goals.
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