A segregated fund is a hybrid product offered through life insurance companies with features of both investment and insurance.
As an investment product, it is similar to a mutual fund in offering and returns. It is a common option for group RRSPs through employers who offer a defined contribution plan. The majority would be unable to discern any noticeable difference.
What sets this product apart is the insurance features it offers. The specifics tend to differ from company to company but in generally they feature;
A maturity guarantee this is a top-up, provision provided by the insurer in the event that the original premium is less than the value of the contract at the end of the maturity period. A minimum of 75% after 10 years is standard but contracts still exist today where 100% was offered.
A death benefit guarantee ensures that at minimum, 100% of the premium (or present value, whichever is higher) is paid to your assigned beneficiary. Most will have an age restriction limiting this feature if purchased after a certain age. ie. 75-80 and younger.
A re-set privilege allows you to lock-in potential gains at any or pre-determined times. This does however reset the maturity guarantee period.
A segregated fund can be an effective, estate planning tool. With an assigned beneficiary one can maintain control of their investments today and bypass their estate expeditiously and with privacy.
Business owners and professionals may choose a segregated fund as it can provide creditor protection for monies outside of their RRSPs.
The main knock against segregated funds versus a mutual fund is a slightly higher embedded fee to pay for the additional guarantees. Fees must be examined but there are several companies that offer premium pricing options that compete favourably.
Your determination of which company and offering to choose will be determined by your own particular circumstances.
Not all investment professionals are able to offer the product as it is only available through those also registered as life insurance agents.