Thanks to segregated funds investors now have the best of both worlds. Very much like a mutual fund investing in underlying securities of companies with the potential of growth and income albeit with added protection much like a G.I.C.
The capital is guaranteed 100 % in most cases if the investment is kept within the plan for at minimum of 10 years. This may be of concern to you especially if you are in one of the following situations ;
- Business owners, professionals, company officers or directors who have higher personal exposure to liability and want to protect their assets
- People who want to maximize the value of the estates they will leave behind and make the transfer to their heirs as easy and inexpensive as possible
- People who are retired or nearing retirement
- Conservative investors who want to have the potential for growth, while securing their principal especially in volatile markets
Segregated funds can be held in a registered or non registered RRSP and the choices are very broad. With the added protection of a 100 per cent maturity ( certain restrictions apply ) and a death benefit guarantee this makes the ideal investment in many instances . Here is how it works.
For example, if you invested a lump sum of $ 10,000 for a 10- year term, you would be guaranteed to receive at least $ 10,000 regardless of how your investments performed. If your investments performed well and were worth
$ 25,000, you would receive $ 25,000. But if your investments were only worth
$ 7,500, you would still receive the $ 10,000 maturity benefit guarantee ( less proportionate reductions for withdrawals ).
Should you die during the contract period, your beneficiary would receive
$ 10,000 or the contract’s market value- whichever is greater. Also, this death benefit would be paid immediately, without the delay and expenses associated with settling an estate through probate ( not applicable in Quebec). Other great advantages of segregated funds are the resetting features. If your investment value goes up you can reset the new amount as your new principal value, literally locking in an initial value. This can be done in some instances automatically or up to 4 times a year. You can also switch from different families of funds without any cost in many cases. This is not the case when one wants to change from one family to another. This type of investment is also ideal when considering leveraging strategies since your capital is guaranteed. However, before considering leveraging one must be sure of his flow of income since defaulting on a loan can be a costly proposition. All interest charges are tax deductible on capital gain type of investments.
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