Seggregated funds vs mutual funds

Many Canadians keep their RRSP retirement savings in some form of mutual funds. We do have an alternative though - seggregated funds.

Seggregated funds (or Seg funds) are basically mutual funds offered by life insurance companies. There are some fine technical differences (you’re not investing in the underlying funds, you’re investing in the seg funds which holds units in the funds) but effectively, they pretty much look like mutual funds.

There’s two important differences between seg funds and mutual funds though. First, seggregated funds generally have higher MER fees - the costs are a bit higher. Secondly, seg funds have base guarantees of capital. That’s right - unlike a mutual fund, seg funds offer guarantees of the capital you invest into the seg funds. These guarantees may not be 100% (though in many cases they are 100%) and they kick in after a length of time, generally 10 or 15 years.

The question is - are you willing to pay the slightly higher MER fees in exchange for those guarantees? That really depends on your aversion to risk. If you don’t care about the volatility of mutual funds, take the lower costs. If you prefer some basic guarantees on the money you put in, consider seg funds.