When you’re planning for retirement, it’s not just about growing your money—it’s about making sure it’s still there when you need it. In Canada, two of the most common investment options for retirement are mutual funds and segregated funds. While they may sound similar, a recent survey shows Canadians trust segregated funds more when it comes to long-term financial security.
Let’s look into the key differences, what investors and pension plan members should know, and why these details matter for your peace of mind.
Mutual
Mutual funds are what many people first think of when it comes to investing for retirement. They allow a group of investors to pool money together. A professional manager then uses that money to buy investments like stocks or bonds.
They’re easy to access through banks or investment platforms and generally come with lower fees. However, mutual funds don’t offer any guarantees. If the market drops, your investment can lose value.
What to expect from mutual funds:
- Professionally managed
- Lower management fees
- Regulated under securities law
- Used widely in group RRSPs and retirement plans
- No protection if markets go down
- No estate or creditor benefits
They’re good for growth, but they can also be unpredictable.
Segregated
Segregated funds work much like mutual funds, but they come with insurance benefits. They’re also managed professionally, but they’re offered through insurance companies and regulated under insurance law.
What sets them apart? They often come with guarantees—for example, you’re promised to get at least 75% to 100% of your original investment back if you hold until maturity or pass away. Some also offer creditor protection and let you bypass probate, which means your money can go directly to your family without legal delay.
What to expect from segregated funds:
- Offered by life insurance companies
- Higher management fees
- Principal guarantees on maturity or death
- Possible protection from creditors
- Estate planning perks
- Greater emotional comfort during downturns
They cost more, but many investors feel the extra benefits are worth it.
Survey
A national survey conducted by Abacus Data for Canada Life highlighted how Canadians feel about these options:
| Product Type | Satisfied (%) | Confident in Long-Term Goals (%) |
|---|---|---|
| Mutual Funds | 63% | 43% |
| Segregated Funds | 74% | 61% |
This tells us something big: people might like both, but they trust segregated funds more when thinking about the future.
Compare
Here’s a side-by-side comparison of the two:
| Feature | Mutual Funds | Segregated Funds |
|---|---|---|
| Regulation | Securities law | Insurance law |
| Fees | Generally lower | Generally higher |
| Principal Guarantees | None | Yes (on death/maturity) |
| Creditor Protection | No | Often available |
| Estate Planning Benefit | No | Can skip probate |
| Long-Term Confidence | 43% | 61% |
Security
Why do more people feel secure with segregated funds?
- Guarantees give peace of mind if markets dip
- Estate benefits reduce legal delays and costs
- Creditor protection can shield your assets
- Predictability is appealing during volatile times
- The insurance backing adds emotional comfort
It’s not just about how much your money grows—it’s about knowing it’ll be there when you need it.
Gaps
The survey also revealed that many Canadians—and even some pension plan sponsors—don’t understand the difference between the two fund types.
There’s a need for better education and guidance:
- Plan sponsors should learn how each option supports different investor needs
- Advisors should focus on more than just returns—they should talk about peace of mind, goals, and resilience
- Investors need simple, human explanations—not just numbers and charts
Both mutual and segregated funds have their place, but making the right choice depends on what matters most to you. If you value growth and lower fees, mutual funds may work. If you’re looking for protection, stability, and estate planning benefits, segregated funds could be a better fit.
In a world full of uncertainty, that added layer of confidence might make all the difference.
FAQs
Do segregated funds have guarantees?
Yes, often on maturity or death.
Are segregated funds more expensive?
Yes, they usually have higher fees.
Can mutual funds lose money?
Yes, they have no guarantees.
Do segregated funds help with estate planning?
Yes, they can bypass probate.
Who offers segregated funds?
Insurance companies provide them.
