Segregated Funds - Is a Segregated Fund a Perfect Investment Opportunity?

Imagine the scenario where you could make anmaturity of the investment.
investment that has the opportunity for growth in2) Protection from creditors - As long as the
the financial markets and comes with a guaranteeannuity contract has existed for at least two
that it won't lose money. No, this is not the stuffyears, and estate taxes are not owed, the
of dreams. In the real world it is called ainvestment held in segregated funds is not
segregated fund and you can get one if you areaccessible by creditors. Even if the account holder
a Canadian citizen.files for bankruptcy or faces other financial
Now, that we're all excited lets get right to it.difficulty the beneficiaries of the life insurance
Segregated funds are professionally managedhave first rights to the annuity.
portfolios provided by insurance companies that3) Liquidity - Investors can usually withdraw upto
have a guaranteed return on maturity or upon10% of the investment amount each year
the death of the investor. The odd name is basedwithout a penalty. If these funds are held in
on the fact that these funds are not part of theretirement accounts then this figure increases to
insurance company's assets but rather from a20%.
separate pool of money dedicated to paying out4) Estate Planning - The process of wealth
the holders of the policy.transfer is faster and cheaper because the
These funds are similar to mutual funds becauseinvestment in segragated funds is not subject to
they are professionally managed, offerprobate. The funds go directly to the account
diversification, have a variety of different typesholder or the beneficiary.
of focus to choose from, the profits are taxedAs expected there a few disadvantages
unless these funds are held in a retirementassociated with segregated funds:
account. The big difference is that segregated1) The cost of investing is higher than that of
funds are variable annity contracts provided bymutual funds.
life insurance companies that usually guarantee a2) Early redemptions above the limits usually have
return of at least 75% if held over a period of atpenalties upto 6% in the first year but they
least 10 years.decrease by 1% in subsequent years to 0%.
Besides the guaranteed return there are a few3) If you decide to change the area of
other benefits of segregated funds:investment there can be additional fees and there
1) Reset options - Most segregated funds haveis a limit on the number of times you can initiate
the option of 'resetting' the investment amount tosuch transfers.
include the gains made in the portfolio. TheirOverall, segregated funds provide a great
usually a maximum number of increasesinvestment opportunity for all with room for
permitted depending on the contract and also thegrowth and protection from losses.
increase in the amount could extend the date of