Mutual Funds and Segregated Funds
                                                                               

Most people have heard of mutual funds but fewer have heard of segregated funds.
Segregated funds are mutual funds offered by life insurance companies. They have the
same benefits of mutual funds as well as advantages discussed later.

Mutual funds offer investors an excellent way to buy stocks and bonds. Over the long
term stocks and bonds have always had a higher rate of return than interest rates. The
difference a small increase in rate of return can make is illustrated on the 2% difference
page.

One of the keys to successfully investing in stocks and bonds is diversity. This means
it is less risky to hold the stocks of many companies than a few. If one has a broad
portfolio, and one company does poorly, it has only a small impact on the overall
portfolio. However few individual investors have the assets to have a broadly based
portfolio. Mutual funds solve this problem by pooling investor's money to buy a broad
portfolio with the investors having a share in all assets of the fund.

Another advantage of mutual funds is that they are able to buy stocks cheaper than
individuals can because of their bulk buying. They are also managed by full time
professionals so the individual investor does not have to worry about buying and
selling stocks.

Segregated Funds are mutual funds distributed by insurance companies. They have
the same advantages of mutual funds which I have just discussed. However they also
have some additional advantages that mutual funds do not have. These include...



A 75% to 100% return of original investment guarantee at maturity or death. This can be
very important especially as one approaches maturity. As an example lets say a 55
year old started a plan with a 10 year maturity. At age 64 he deposits an additional sum
of money. At age 65 he would be assured of getting his guaranteed principal back
regardless of what the market did. 



Creditor proof protection. Contributions to an RRSP with an insurance company are
generally creditor proof if there is a regular pattern of depositing. This is not true of
RRSPs with other institutions.



No probate fees. 

These funds are called segregated funds because they are held in a separate account
for the exclusive use of the investors. They cannot be used by other creditors of the
company.

These are significant advantages not available in mutual funds, that do not cost extra.
Therefore they represent additional value for one's investment dollar. As an
independent broker I have access to a wide variety of segregated funds from many
companies. An investor profile can be done to see what mix of financial investments is
right for you.
