SEGREGATED FUNDS

Mutual Funds with an Insurance Policy wrapper

Basant Ramachandran

Definition

A.k.a Individual Variable Annuity Contract

orGuaranteed Investment Funds

Insurance Contracts offered by Insurance Companies, structured as an investment producing return and an Insurance policy to mitigate risk.

Features

Principal guaranteed at maturity and at death 70% - 100% Guarantee void if redeemed earlier Guarantee period >= 10 yrs

Protecting Market Gains using Resets Creditor protection Consumer Protection Avoids Probate Fees

Insurance protection Management / Operating expense

24 Jun 2014 24 Jun 2024

$1000

$ 2000$1700

$600$400

Annuitant receives$2000

Guarantee: 0

Annuitant receives$750

Guarantee: $350

Maturity Guarantee : 75%Death Benefit Guarantee: 75%

Beneficiary

Depiction of Seg FundLifecycle

Similarities with Mutual Funds

Pooling of Funds

Professional Money Management

Diversification of portfolio

Capital Growth potential

Investment options similar to MF

RRSP Eligible

The risk / return is similar to Mutual Funds

Mutual Funds VS Segregated Funds

Benefit Segregated Funds

Mutual Funds

Maturity Guarantee Yes No

Death benefit Guarantee Yes No

Creditor Protection Yes No

Probate Protection Yes No

Insurance Protection Yes No

Mutual Funds VS Segregated Funds

Mutual Funds Segregated Funds

Regulated by Provincial Securities Legislation

Regulated by Provincial Life Insurance Acts

Offered through a prospectus

Offered through an information folder

Issues Units / Shares Issues Contract

Cons

Lock-in >= 10 yrs

Penalties for early Redemption

Higher fees (0.5% > MF)

Regulation

OSFI / CCIR / Provincial Regulators

Life and health insurance companies are regulated for solvency: they must meet Minimum Continuing Capital and Surplus Requirements (MCCSR) set by the Office of the Superintendent of Financial Institutions (OSFI) and maintain reserves to meet future guarantees

Products sold by regulated licensed advisors.

Disclosure provided to investors

Market crash

Great-West Life co Inc., Manulife Financial Corp. Sun Life Financial Inc.

Setting aside large reserve amounts Bottom lines hit - Quarterly several

hundred million dollars Share prices down by 50%

Facts

35% - Insurance market space

$224.2 Billion

3.4 Million Canadians

Q & A