What is a segregated fund?

A segregated fund (or "seg fund") is an investment product issued by insurance companies that combines features of mutual funds with insurance protection. Unlike traditional mutual funds, segregated funds come with a guarantee that protects your principal investment. At maturity (typically 10-15 years) or upon your death, the insurance company guarantees you will receive a minimum percentage of your invested amount, usually 75-100 percent, even if the underlying investments perform poorly.

These guarantees are backed by the insurance company's balance sheet, not a pooled fund structure. This distinction makes seg funds particularly relevant for investors in Toronto and across Ontario who want downside protection without sacrificing market participation. They are typically held within registered accounts like RRSPs or non-registered accounts and may offer creditor protection and probate bypass features depending on the specific product and contract terms.

Segregated funds appeal to conservative investors, those near or in retirement, or those seeking capital preservation alongside growth potential. Because they carry insurance guarantees, seg funds generally charge higher fees than comparable mutual funds. Investors should work with an insurance agency to understand the guarantee conditions, fee structure, and whether a seg fund aligns with their risk tolerance and financial goals. A life insurance provider can explain how seg funds fit within a broader financial plan.