Segregated Funds combine the growth potential of mutual funds with the security of insurance. When you invest in a segregated fund, you are actually buying an insurance contract. The money from each contract is then invested in an underlying mutual fund. While you don’t own units of the mutual fund, the returns of your segregated fund will closely track those of the underlying mutual fund.
Segregated funds come with guarantees designed to protect your money from market volatility. Depending on your chosen level of protection, you are guaranteed that you will get back up to 75-100% of your investment, regardless of how markets perform. Following your 10-year term to maturity or upon your death, you or your beneficiaries will receive either the guaranteed amount or the market value of your investment, whichever is greater. Like mutual funds, you can buy and sell segregated funds at any time. However, if you sell prior to the maturity date, you will receive the market value, which may be less than your original investment.

Some segregated funds include a “reset” feature, which allows the investor to lock in investment gains and reset the minimum guaranteed amount at a higher level.

In addition to the death benefit that helps you preserve your investments for your beneficiaries, segregated funds can help you avoid costly delays that can affect the value of your investments as funds will flow directly to your beneficiaries, bypassing probate.

If you own a business, are self-employed or are the director or officer of a company, your savings can be at risk if creditors can claim your personal or business investments. However, as an insurance contract, segregated funds are out of reach to creditors if you name a spouse, child, parent or grandchild as beneficiary. The protection isn’t foolproof, but should be effective if you don’t try to use your segregated funds as an emergency asset shelter.