Universal Finance is pleased to introduce you one of the best and safest investment instrument - Segregated Funds. Segregated funds have become a very popular investment instrument in Canada. Segregated funds are essentially mutual funds which have been augmented with additional insurance features which provide a guarantee on the initial principal invested after a specified time horizon. Although Segreated Funds look similar to Mutual Funds, it is a type of investment fund available through a life insurance company. Segregated funds are insurance contracts or policies. They are generally structured as “individual variable annuity contracts.” It is a pool of specific assets and cannot be used by the company for any other purpose. Segregated Fund provide you with potential protection of your investment capital from creditors and guarantees you will get back from 75% to 100% (and possibly more,depending on the contract) of your gross contributions at a specified maturity date (typically no less than 10 years from the date of your original investment) or at the death of the insured person, regardless of how the investments held by the funds perform.

How Investment Funds Work

All investment funds, including segregated funds, work in much the same way.

An investment fund allows many individuals to pool their money for purposes of investing in stocks,bonds and other kinds of securities.A fund hires a professionalinvestment manager who sets an investment strategy and selects the assets the fund will hold,according to the investment objectives and policies of the fund.

An investment fund is typically divided into shares or units. The unit price fluctuates with the market price of the securities the fund holds. Individual investors receive a number of units, depending on the amount of money they contribute to the fund, the unit price at the time they invest and any fees that are applicable.

Fund investors get a share of the fund’s ongoing investment earnings or losses, based on the number of units they own. When they redeem or sell units, the redemption value or price they get depends on the number of units redeemed, the unit price at the time of redemption and any applicable fees.

Benefits of Segregated Funds

All segregated funds offer specific benefits that other types of investments do not:

• They allow individuals who have only a little capital or limited investment knowledge to invest in a diversified portfolio of assets and to benefit from the investment expertise of a professional manager.

• They offer these benefits at relatively low cost, since individual investors share the ongoing expenses of running the fund, such as employing a manager and buying and selling assets.

• They are very liquid; in other words, individual investors can cash out at virtually any time by redeeming their units with the fund issuer.

Segregated funds provide the benefits above plus some additional ones:

• They are available only through a life insurance policy or contract that guarantees you will get back at least 75 per cent (and possibly more, depending on the contract) of your gross contributions at a specified maturity date (typically no less than 10 years from the date of your original investment) or at the death of the insured person, regardless of how the investments held by the funds perform.

• They provide you with potential protection of your investment capital from creditors.

When you invest in a segregated fund, the guarantees on your capital give you a degree of protection from investment risks that other types of investment funds do not provide. You can only benefit from this protection, however, if you hold the contract until it reaches maturity or until the death of the insured person.

Investment Options

There is a wide variety of segregated funds on the market. You may find it simplifies your choices to think about the available funds in terms of how well their investment objectives match yours. Based on investment objectives, funds tend to fall into three broad categories.

• Growth funds invest mainly in the common stocks of companies with good growth prospects in order to produce capital gains.

• Fixed income funds invest mainly in bonds, other debt instruments and shares of companies that pay dividends, in order to produce a stream of income while protecting investors’ capital.

• Balanced funds invest in a blend of stocks, debt instruments.

The managers of different funds may use different strategies to reach similar objectives. As a result, there is a wide choice of funds within each of the categories described above. Consider, for example, the following types of growth stocks:

• Global equity funds hold stocks of companies from around the world.

• Index funds buy a representative group of securities that mirrors the composition of a particular stock exchange.

• Biotech funds specialize in the stocks of companies that are involved in medical and pharmaceutical innovation.

The different strategies the managers of these funds have chosen are all intended to produce capital gains. But the selection of securities, degree of diversification, level of risk, amount of trading and time horizon for achieving growth varies from fund to fund.

Diversification and Investment Risk

The more diversified a fund is, the greater the mix of assets it holds in its investment portfolio. As a rule of thumb, the more diversified the fund, the less potential there is for it to suffer drastic losses. That’s because when one or more of its investments does poorly, others may be doing better.

The converse also holds true: the more specialized a fund is in terms of the kinds of assets it holds, or the industry or part of the world it invests in, the greater the potential for significant gains and losses.

As with all investment products,there are other kinds of investment risk such as, inflation risk, market risk, default risk, currency risk, interest rate risk and political risk. You can learn more about the investment risks of a particular segregated fund by asking Universal Finance insurance advisor questions and by consulting the information folder or the contract.

It’s smart to consider the purchase of a segregated fund contract a long-term investment.

Special Features of Segregated Fund Contracts

Segregated fund contracts have special features over and above those offered by other investment funds. The unique benefits these features confer on investors are described in greater detail below:

• A guaranteed maturity benefit, equal to at least 75 per cent (and sometimes as much as 100 per cent, depending on the contract) of gross contributions (total contributions less total withdrawals). This guarantee takes effect on a specified maturity date, typically not less than 10 years from the date the segregated fund contract is issued. In some cases, each additional contribution has its own maturity date. As well, some insurers permit individual contract owners to reset the guarantee periodically in order to lock in increases in the value of the segregated funds the contract has invested in. Typically, exercising this privilege extends the maturity date of the contributions involved.

• A guaranteed death benefit, equal to at least 75 per cent (and sometimes as much as 100 per cent, depending on the contract) of gross contributions. This benefit is payable directly to the beneficiary of the contract upon the death of the insured person. If a beneficiary is named and the death benefit paid to him or her, there are no probate, executor or lawyer’s fees. As with the guaranteed maturity benefit, some insurance companies allow individual contract owners to reset the guaranteed death benefit periodically, to lock in increases in the value of the segregated funds the contract has invested in.

• Potential creditor protection. When the contract’s named beneficiary is a spouse, child, grandchild or parent of the insured person (or, in Quebec, the contract owner), when the beneficiary is designated irrevocably or, in some provinces, where the contract is registered (for example, as an RRSP), creditors cannot seize a segregated fund contract if the contract owner declares bankruptcy or fails to pay his or her debts, as long as he or she has not entered into the contract for the primary purpose of shielding assets from creditors. In some instances, courts of law have deemed the purchase of segregated fund contracts while the creditor was insolvent as an attempt to shield assets, and disallowed the creditor protection.

• Optional disability waivers. When a segregated fund contract specifies the amount and timing of additional contributions, some insurance companies allow the individual contract owner to apply for a disability waiver. This is an extra benefit of the contract that provides that the insurer will make previously scheduled contributions up to a specified maximum, in the event that the individual is totally disabled as defined by the contract.

Your InvestmentNeeds and Strategy

Every investor has unique investment needs. The main determinants of these needs are personal financial goals, the time available for reaching them and individual tolerance for risk.

Consider these two examples of investors:

• A couple in their twenties with secure, well-paying jobs, no children and the goal of buying a house in three to five years.

• A 50-year-old single parent of two who does contract work, owns a mortgage-free house and wants to retire at 65.

The couple has a relatively modest, short-term goal of accumulating a down payment. With healthy, stable income expectations and few obligations, they might be willing to take some risks with a portion of their investment capital. In contrast, our single parent has a more challenging, longer-term goal.

Are Segregated Funds for You?

Once you have an investment strategy, you and your insurance advisor can look at the characteristics of different types of investments to see whether or not they fit your defined goals. As discussed in Section 1, segregated funds offer many of the same advantages as other investment funds, such as mutual funds. They provide investors who have limited capital and investment knowledge with a broad selection of fund types, diversification, professional management, the opportunity to share expenses, and liquidity.

Segregated fund contracts also provide a number of unique features: guaranteed value on maturity; a guaranteed death benefit; and potential creditor protection. These features offer long-term financial and estate planning benefits that other typesof investment funds do not.

Need help developing your investment strategy? Our insurance advisor can help you analyze your needs and come up with an appropriate strategy.