Segregated Funds
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Segregated FundsLess than 10 percent of Canadians are familiar with "segregated funds", which are a viable alternative to mutual funds. These would appeal to conservative investors, which 80% of us consider ourselves to be - with investment goals split between preserving capital and maximizing growth. When informed of the benefits of segregated funds 70% of us consider them at least as good an investment as the mutuals we normally carry.BPI Mutual Funds, in partnership with the Transamerica Life Insurance Company of Canada has launched a new family of segregated funds called the BPI Legacy Funds, which will invest in BPI's traditional mutual funds. CI Mutual Funds Inc. was the first major company to launch a segregated fund company last fall, and others are set to follow, with BPI offering an 11 fund set. With BPI, investors can lock in market gains up to four times annually. Trimark has also leaped into the fray, in partnership with AIG Life Insurance Company of Canada, since seg funds can only be sold by those licensed to sell life insurance.
Segregated funds have been around for 30 years, and are basically mutual funds with some built-in features and guarantees. By law they can only be offered by insurance companies, which is why mutual fund companies seek out insurance partners. The funds offer investors a 100 per cent guarantee of their principal provided that the money remains invested for at least 10 years, or upon the death of the policyholder. They are considered insurance investment products which gives them a high degree of protection from creditors. They're also a tool for estate planning. When a beneficiary is named, probate fees are avoided by deeding the proceeds directly to a beneficiary upon death. Sales of segregated funds have risen from 2.7 billion in 1990 to 20.7 billion in 1997. This investment product has been offered by the life insurance industry for 20 years, but it has been a well kept secret. Only one in ten Canadians are knowledgeable about this product, according to recent surveys. Last note, at a recent visit to Surrey Metro Credit Union/Pacific Coast Credit Union, they were offering segregated fund loans at prime - a good example of their safety!!
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Segregated funds are a conservative product that appeals to investors 50 and over who are nervous about equity markets. They also appeal to investors who want to pass on assets while reducing legal and probate costs. The principal is guaranteed through the insurance policy, but segregated funds should not be confused with other products such as universal life policies which combine full life insurance and investments. A guarantee of principal is very important for people over 50. The Japanese market, for example, is lower now than it was ten years ago. The term "segregated" is used because the assets in these funds are kept separate from the general assets of the participating insurance firm. So in the case of a bankruptcy such as Confederation Life, the segregated fund's assets are not at risk.
Here are some of the benefits of segregated funds: Reset Option You can reset the guaranteed minimum amount several times a year and begin a new 10 year term Creditor Protection Insurance products have the highest level of creditor protection of any financial product, as long as the deposit is made "in good faith" No Probate By selecting a beneficiary, the proceeds go directly to that person upon your death In his most recent newsletter, financial author Garth Turner writes that the segregated funds address investor nervousness about the market, but at a cost he feels is too high. The higher Management Expense Ratio needed to pay for the insurance policy is too great a price to pay, seeing as how the worst performing Canadian equity fund of the last ten years gave a return of almost eight per cent. Investors worried about market corrctions and outright crashes might find that the future is cloudy enough to warrant such a product, however. In his 1988 Buyer's Guide to Mutual Funds, author Gordon Pape writes on segregated funds "Surprisingly, most people know little or nothing about the advantages of segregated funds, perhaps because the industry has only recently begun to aggressively promote these products. They are well worth looking at." BPI Legacy Funds Web site offers nothing on segregated funds (that I could see), so call 1-888-721-2999 or 1-416-216-8885 for a real person to give further info-$5,000 minimum initial deposit CI Mutual Funds This one has the disclaimers, etc.--EVERYTHING! Trimark Mutual Funds Start the search here!
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