Segregated Fund
What Is a Segregated Fund?
A segregated fund is a type of investment vehicle generally utilized by Canadian insurance companies to oversee individual, variable annuity insurance products. A segregated fund offers investment capital appreciation and life insurance benefits.
Investors can hope to pay a somewhat higher total expense ratio on segregated funds due to their more complex structure. Moreover, these fund offerings ordinarily don't have aggressive fund objectives. Hence, returns from the funds will quite often be more unobtrusive.
Figuring out Segregated Funds
Segregated funds are structured as deferred variable annuity contracts with life insurance benefits. They are managed in separate accounts by the insurance company. These products are like other variable annuity products offered by insurance companies. They are basically issued by Canadian insurance companies for Canadians. The products are not traded in the public market. They are structured as contracts and don't account for ownership by shares or units.
Segregated funds must be held until maturity. An investor can decide to invest in a segregated fund in light of its investment objective and product terms. Segregated fund offerings differ extensively by objective and underlying investment options. They additionally offer investors fluctuating terms for annuity payouts and the life insurance benefit.
How Segregated Funds Work
The funds offer capital appreciation through investment up to a predefined maturity date. They likewise offer a life insurance death benefit in the event that the owner passes on before the contract develops. Most segregated funds offer a guaranteed payout of something like 75% to 100% of the premiums paid, which is an advantage over standard mutual funds where the investor has the risk of losing the entirety of their investment. This provision for the most part applies to both the death benefit and the annuity payouts.
Segregated funds start payouts to investors following the predetermined maturity date. Investors can browse different options for a payout schedule offered by the product once the segregated fund develops.
Segregated funds are viewed as insurance products sold by insurance companies and, subsequently, the administering bodies and regulations responsible for directing segregated funds are typically the very ones that cover insurance companies.
Instances of Segregated Fund Investing
Sun Life and the Royal Bank of Canada are two companies with segregated fund product offerings for Canadians.
Sun Life
Sun Life offers perhaps one or two segregated fund options. Options from Sun Life incorporate Sun GIF Solutions, Sun Lifetime Advantage GIF, and Sun Protect GIF. Sun Life additionally offers segregated funds through financial advisors.
Royal Bank of Canada (RBC)
The Royal Bank of Canada offers an assortment of segregated fund options for investors. Segregated fund options are accessible in three categories: Invest Series, Series 1, and Series 2. Allocations, underlying investments and terms change by product offering.
Features
- Since these products offer better guarantees than traditional insurance or annuity products, they really do accompany higher fees and expenses.
- A segregated fund is an investment pool structured as a deferred variable annuity and utilized by insurance companies to offer both capital appreciation and death benefits to policyholders.
- Generally found in Canada, segregated funds are private contracts among insurers and customers that must be held until contract maturity.
