What is a Segregated Fund (Seg Funds For Canadians)

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October 21, 2022

In simple terms, a Segregated Fund(SegFund, SegFund) is like a mutual fund with insurance. What’s a mutual fund? A mutual fund is an investment fund that pools money from many investors to purchase securities. People buy mutual funds, because they’re imagined as less risky, it’s unlikely that a mutual fund will ever fall to $0 because it would mean that all the stocks in the mutual fund went to ZERO, which is highly unlikely.

A Seg Fund is a more secure version of a mutual fund, as SegFund guarantees at least 75% of the initial investment as long as the SegFund is held by the owner until the maturity date.

So let’s imagine I put $100 into a SegFund for ten years, and after ten years, the value of the investment drops to $50. Well, with the SegFund guarantee, I would get back at least $75.

If, instead of purchasing a SegFund, I purchased a mutual fund after ten years in the same scenario, I’d get back $50. That’s the basics of a SegFund; it gets better because SegFunds have reset, so let’s say I put $100 into my SegFund, and in 6 months, my $100 investment doubles to $200. Well, then I can reset my SegFund, and then the new 75% guarantee is now $200.

$200 x 75% = $150, meaning that if I allow my SegFund to mature, I will not lose any money; in fact, it will be guaranteed that I make at least $50, even if on the maturity date, the value of my SegFund is only $50, I will stay get at least $150, even though I only put $100 into the SegFund.

A segregated fund or seg fund is a type of investment fund administered by Canadian insurance companies in the form of individual, variable life insurance contracts offering certain guarantees to the policyholder such as reimbursement of capital upon death.

When some say that you should buy term and invest the difference in mutual funds, I say buy Whole Life Insurance and invest the difference in SegFunds. Although both Whole Life Insurance and SegFunds are more expensive than term Life Insurance and Mutual Funds, the more expensive options offer services and features not available in term and mutual funds.