Segregated Funds vs Mutual Funds

Both segregated funds and mutual funds offer similar characteristics as investments. However, they also have some key differences that make them unique. Here are the basics of segregated and mutual funds and what makes them different.

Mutual Funds

A mutual fund is an investment vehicle that allows investors to pool their money together and purchase securities. The money is controlled by a fund manager that makes the investment decisions for the group. With a mutual fund, you can easily buy and sell shares in the fund. Mutual funds allow regular investors to diversify their investment portfolios. Since mutual funds control a large sum of money, they can afford to invest in of thousands of different securities and diversify the portfolio. This provides something than most regular investors can not do for themselves.

In order to buy and sell shares of a mutual fund, you will need to work with a financial broker. You will have to pay some type of a commission charge in order to purchase shares. The mutual fund will also charge and expense ratio on an ongoing basis to shareholders. This expense will cover the management fees associated with the fund.

Mutual funds provide you with a way to invest in many different types of securities. You can find mutual funds that focus on a particular sector of the market or funds that diversify across the entire stock market. You can get mutual funds that invest in all stocks or a combination of stocks and bonds. You can even focus on mutual funds that emphasize capital appreciation or those that provide a regular income for shareholders. With all of these choices, investors have a lot of flexibility with what they can do.

Segregated Funds

Segregated funds are similar to mutual funds in that they pool together the resources of many investors. A management team takes care of making the individual investment decisions of the fund. This investment vehicle can also provide a superior level of diversification for investors.

One of the big differences with this type of fund is that it is typically provided by companies that specialize in insurance. This means that the rules governing this type of fund are different than the rules that govern mutual funds. Segregated funds are considered to be insurance products and typically involve a life insurance component. Therefore, in addition to getting gains from investing, you will also have a death benefit that can be paid to a beneficiary if you die.

Segregated funds also typically come with some type of guarantee against losses. You will usually be guaranteed an amount that is near your initial investment.

Segregated funds also have a few drawbacks when compared to mutual funds. These type of funds typically have higher costs associated with them. Therefore, this can significantly cut into the amount of returns that you can realize. In addition to this, since there is a guarantee on the investments, this tends to limit the potential gains that you can get. Therefore, you will usually be able to get a higher return with mutual funds.

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