What is a segregated fund?

Expected return

Generally, the amounts you invest will fluctuate with the market value of the fund assets (e.g., stockA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.
The company can distribute a portion of its earnings to shareholders by paying them a dividend.
The shares of companies listed on an exchange are bought and sold at the exchange.
When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders. or bondsA bond is a security issued by governments and companies through which an investor lends money to the issuer.
In general, the government or company promises to pay the investor interest at a fixed rate and at certain intervals (for example, 2% per year). Interest is normally paid twice a year. At maturity, the government or company pays back a predetermined amount that is called the face value. The face value is usually $1,000.
There are several types of bonds:
Stripped bondReal return bondConvertible bondSavings bondRetractable bondUnsecured bondEtc. ). 

Like mutual funds, segregated funds may earn returns in the form of interestInterest is a percentage of an amount, paid at a given frequency (for example, 2% per year). It is paid by the borrower to compensate the investor for lending them the money.
When an investor deposits money in their account at the bank, the bank uses it for other purposes. The investor therefore lends their money to the bank, which compensates the investor by paying them interest.  , dividendsDividends are the portion of the earnings, after taxes, that a corporation distributes to shareholders in proportion to their holdings. and capital gainsA capital gain is the difference between the selling price and the purchase price of an investment, when the difference is positive.
For example, if you buy a share for $12 and later sell it for $20, then your capital gain is $8.
This is the opposite of a capital loss. . They grow by retaining and reinvesting the amounts they earn.

Who can offer segregated funds?

These products are offered by life insurance companies. Only life insurance representatives (financial security advisors) are authorized by the AMF to offer segregated funds.

What guarantees does a segregated fund offer?

To benefit from the guarantees, you must hold the fund until maturity or death, whichever comes first.

Contracts use the following expressions to describe these guarantees: 75/75, 75/100, 75/100 i, 100/100, 100/100 i.

• The first figure indicates the minimum percentage of the investment that is guaranteed at contract maturity.
• The second figure indicates the minimum percentage of the investment that is guaranteed at death.
• The “i” stands for inflation protection.

If you withdraw your money before maturity, the guarantee will not apply. You need to hold your investments until the contract maturity date to benefit from the guarantee. If you withdraw your money early, you will have paid a higher management fee to cover the cost of insurance but lose the benefit of the guarantee.

Inflation protection

Some contracts offer a death benefit guarantee that includes inflation protection. In this case, the guaranteed amount in the contract may be the higher of:

• The reset or
• The previously guaranteed amount adjusted for inflation up to a maximum of five percent.

What fees and charges are there?

Other administrative fees may apply.

What are the risks?

Despite the guarantees that are offered, segregated funds carry some risk. The level of risk varies with the type of fund chosen (money market, bond, equity, etc.).

For example, if your investment is protected by a 75% maturity guarantee, you could still lose 25% of the investment if the markets decline 25% or more by the maturity date. The loss incurred could be even greater if you redeem your contract before maturity in order to make cash available, because the guarantee won’t apply. This is something to consider before purchasing a contract providing a guarantee with a maturity date of age 100 or 105.

Are they easy to redeem?

Yes, it’s easy to redeem segregated funds. However, if you redeem them before the maturity date, you will receive the market price—in some cases, minus redemption fees and administrative fees. It’s important to discuss the segregated fund redemption terms and conditions with your representative when purchasing the product.

Resets

Some segregated funds allow guarantees to be reset from time to time. To reset means to adjust the guarantee based on the current market value of your investments and thereby lock in market growth. Resetting the value of the guarantee usually also extends the date on which you will be entitled to the maturity guarantee.

Depending on the contract, the guarantee value may be reset annually or every three years, for example. Such resets may be automatic or client-initiated. Some contracts no longer allow resets beyond a certain age (e.g., 80). Resets are sometimes only offered for the death benefit guarantee. Read the contract carefully.