While a segregated fund and a mutual fund share many similarities, there are key differences between the two. Investors, you should be aware of these.
Similarities:
Mutual funds and segregated funds let investors pool their money together in a fund that’s managed by a qualified investment firm. It’s a process that diversifies your investments. This has the potential to limit your exposure to market fluctuations.
For many people, it’s a very attractive investment option! Not only is it cost-effective, but it can be custom to your unique risk tolerance. There are no shortage of fund options to choose from! They span various geographic regions, industry sectors, and risk profiles.
Additionally, each of these two investment vehicles carry management fees. They’re paid to the fund management company and are automatically deducted from the investment value. The annual return investors see on their statement includes the management fees.
Differences:
Segregated Funds
These fall under the insurance legislation: Individual Variable Insurance Contracts. This means that they gain access to some crucial perks such as the ability to name a beneficiary.
What’s the advantage to naming a beneficiary directly on investment accounts?
The ability to bypass the will and the lengthy, costly and complex probate process. This provides liquidity and confidentiality for the policy owner and beneficiaries. Additionally, segregated funds offer maturity and death benefits guarantees. This provides further protection to investors against market downturns. However, segregated funds generally result in higher fees than mutual funds. It is important for investors to evaluate the different investment options. You should base your decisions on holistic and individual circumstances, goals and objectives.
Mutual Funds
Naming a beneficiary on non-registered accounts is not traditionally allowed with mutual funds. As mentioned above, the fees on mutual funds tend to be lower than on segregated funds.
What to do next?
We can help! Let’s discuss the benefits and differences between segregated funds vs. mutual funds. Contact Jeff Graham at 604-761-7543 or jeff@firstoakfinancial.ca.