How does tax treatment for segregated funds differ from that of mutual funds?

The tax treatment of segregated funds is distinct in that it allows for the deferral of capital gains taxes until the investor withdraws funds from the investment. This means that while the investment may grow and generate capital gains over time, the investor does not incur a tax liability on those gains until they decide to take money out of the segregated fund. This aspect is beneficial for investors looking to maximize their investment growth without the immediate tax burden that could otherwise affect their decision-making.

In comparison, mutual funds typically trigger a tax event each time there is a distribution of capital gains, regardless of whether the investor has sold any of their shares or not. This makes segregation funds attractive for longer-term investors who want to defer taxes and possibly reduce their overall tax burden. Additionally, segregated funds often come with options for maturity guarantees and death benefits, providing further incentives that are not commonly available with mutual funds.

This unique feature of tax deferral until withdrawal is what sets segregated funds apart in terms of tax treatment, allowing for potentially more favorable tax planning strategies for investors.