Home » Mutual Funds » Decoding investment choices: Mutual funds vs segregated funds

Decoding investment choices: Mutual funds vs segregated funds

Individuals across age groups look for investment opportunities to secure their future and earn profits. Two effective investment opportunities include mutual funds and segregated funds. At first glance, they might appear to be the same to many which is why it is integral to study their similarities and differences. 

In this article, we will look at mutual funds vs segregated funds along with looking at the features of each. 

What are mutual funds? 

Mutual funds refer to an investment opportunity where funds from different investors are pooled together to be invested in a combination of stocks and bonds. The investment is managed by a professional fund manager on behalf of the individual investors. It helps in dividing the changes of the investment manager while also reducing the risks with a diversified investment. 

The key advantages of mutual funds investments is their liquidity. They can be sold at any time because they are publicly traded. This makes mutual funds ideal for both short and long-term investments. Additionally, mutual funds are renowned for the high returns they offer, outperforming all other investment types. 

There are also a few negative considerations of mutual funds that must be kept in mind. Mutual funds are subject to tax similar to stocks and they also have a high operational cost, marketing fee, management fee and administration fee. Lastly, the investor has limited control over their investments because the fund manager is in charge of investing-related decisions. 

What are segregated funds? 

The segregated funds are investment opportunities offered by life insurance companies that combine the security of a life insurance policy with the growth potential of a mutual fund. Most segregated funds provide an investment opportunity with 100% cover on death within a time frame of 10-15 years. 

The meaning of the term segregated is that the assets in the fund are segregated from the insurance company assets. Unlike mutual funds, they guarantee that besides a portion deduced in the fee, the rest of the amount of the funding will be safe if you retain the fund for a specific period. What makes these funds advantageous is their guarantee of a portion of the principal fund. 

Additionally, it provides death and maturity guarantee which means that the people associated with the deceased person will receive a minimum amount of the fund irrespective of the market performance.

Investors can likewise benefit from a diversified portfolio and that makes the investment less risky. When considering the downside, the segregated funds charge a management and operation fee that must be accounted for before investing. 

Mutual fund vs segregated fund

With an understanding of the two funds and their features, let us now look at their similarities and differences by considering the following pointers: 

  1. Fees

Both the mutual funds and segregated funds charge a fee for their operations. However, when compared, the fee charged by segregated funds is usually higher than that of mutual funds. This fee must be considered because it ultimately lowers the profits of the investors. 

  1. Liquidity

Both the funds have high liquidity and can be cashed at any time. However, in the case of segregated funds, the investors might lose the capital guarantee if liquidated before the mentioned period, usually 10 years. 

  1. Security 

The segregated funds are protected which adds a layer of security. Irrespective of the performance of the underlying asset, the principal amount is safe. The same might not be the case for mutual funds that add to their level of risk. 

  1. Death benefit 

The segregated funds provide maturity and death benefits. The money is safe even in case of death in a segregated fund. As against this, mutual funds do not provide maturity or death benefits. 

  1. Creditor protection

Segregated funds are advantageous in this case as they provide creditor protection while mutual funds do not. The money is safe from creditors in cases of lawsuit or bankruptcy. 

  1. Guaranteed returns

In the case of segregated funds, the fund guarantees that the investor will receive from 75% to 100% of their funds. As against this, there is no such guarantee under mutual funds. 


It is important to thoroughly understand the pros and cons of the investment fund before investing. This ensures that you make an informed decision. For investors looking for more safety maturity and death benefits, a segregated fund is a better choice. As against this, for investors looking for more profitable and less fee investments, mutual funds might be the ideal choice. 

Whether or not death and maturity benefits are important for individuals is another consideration that determines the decision. Subscribe to StockGro to learn more. 


Are segregated funds better than mutual funds?

Mutual funds do not come with any security. As against this, segregated funds come with the security of an insurance company which means there is more security in the case of segregated funds which makes them a better choice for some investors. 

What are the advantages of segregated funds?

The advantages of segregated funds include more security, maturity and death benefits, credit protection and guaranteed returns to name a few.

What are the disadvantages of a segregated fund? 

The most central disadvantage of segregated funds is the high fees associated with the fund. They have a higher management expense ratio which covers the cost of the insurance features they offer.

Which funds are riskier mutual funds and segregated funds?

Mutual funds are more risky because they do not come with any guarantee and are dependent on the market conditions entirely. As against this, segregated funds guarantee 75-100% of the principal amount and provide more security to the investor.

What is the death benefit in segregated funds?

The segregated funds guarantee the fund amount to the beneficiary in case of death. The death benefit can be up to 100% based on the contract terms chosen by the investor.

Enjoyed reading this? Share it with your friends.

Post navigation

Leave a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *