What does it mean when an investor experiences market risk in segregated funds?

When an investor experiences market risk in segregated funds, it refers to the potential for the value of those funds to decline as a result of external market conditions. This could be due to factors such as economic downturns, changes in interest rates, or fluctuations in the stock market. Segregated funds, while offering certain protections such as principal guarantees and creditor protection, still have their values tied to the performance of the underlying investments, which can be affected by overall market movements.

In essence, market risk acknowledges that while the investor has a level of protection, there is still inherent risk associated with the market's performance that can lead to a decrease in the value of their investments. Understanding this risk is crucial for investors as it impacts their financial planning and expectations of returns.