Smart investors know that strategic investment planning is vital to the long-term success of their portfolios.  That’s why they constantly seek to expand their range of knowledge and understanding of the many investment options open to them.  One of these is Segregated Funds -— an investment choice that has recently jumped in popularity among investors. This renewed buoyancy has occurred because Segregated Funds — or Seg Funds as they are more popularly known — can deliver important benefits to certain types of investors.

But what exactly are Seg Funds — and are they a good fit for your portfolio? 

Here are some Seg Fund basics that might help:

·         Seg Funds are not mutual funds, but they do offer many benefits similar to those of mutual funds including diversification and simplicity of choice. Much like mutual funds, Seg Funds pool the investments of multiple investors and employ professional investment managers to invest in a variety of individual securities. The value of your investment increases or decreases as fund values go up and down.

·         Seg Funds are actually an insurance contract. The money you invest in each Seg Fund contract is sometimes invested in another underlying mutual fund. In this way, the returns from your Seg Fund investment should closely mirror those of the underlying mutual fund; however, you do not directly own units of that underlying mutual fund.

·         Because they are an insurance product, Seg Funds can provide certain guarantees that protect your money from market volatility. Depending on the contract selected, you can be guaranteed to get back up to 75 to 100 per cent of your investment no matter how markets perform during your investment period.

·         Seg Funds can also provide the potential for creditor protection. For example, as a self-employed person or business owner, creditors can claim against your business investments or personal savings.  However, as an insurance contract, in most provinces Seg Fund investments are usually beyond a creditor’s reach when you name a family member — your child, spouse, parent or grandchild — as beneficiary.

Are Seg Funds right for you?

Segregated Funds could be an ideal addition to your portfolio if you’re looking for:

·         A measure of certainty in your portfolio — you can guarantee that you will at least get back a proportion of your initial investment (depending on the contract selected) regardless of market volatility.

·         The potential for creditor protection — when particular conditions are met. This is especially useful if you own a business or are open to liability through your profession.

·         Estate planning benefits — unlike non-registered mutual fund investments, which can be subject to probate fees, a Seg Fund investment can flow directly and speedily to your named beneficiaries.  As it avoids probate, the amount left to a beneficiary in a Seg Fund remains private and does not become public information. The death benefit guarantee also ensures that your beneficiary will get a guaranteed amount should your investment have fallen, ensuring that your loved ones are looked after in their time of greatest need.

·         Growth potential — Seg Funds can deliver the kind of returns associated with similar mutual funds. They often have additional expenses associated with their insurance feature, so their returns may be lower than a mutual fund with the same objectives and investments.

You can choose from a wide selection of Seg Funds covering a host of investment classes and investment styles, many include a “reset” option that allows you to raise the level of your minimum guaranteed amount.

Talk to your professional financial advisor about designing a portfolio with the right mix of Seg Funds and other investments to help you achieve your goals.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.  Insurance products and services are distributed in Quebec by Les Services Investors Limitée (Financial Services Firm), and elsewhere in Canada by I.G. Insurance Services Inc. (insurance license sponsored by The Great-West Life Assurance Company).