Why might an investor choose a segregated fund over a traditional mutual fund?

An investor might choose a segregated fund over a traditional mutual fund primarily due to the insurance guarantees and tax advantages that segregated funds offer. Segregated funds are contracts issued by insurance companies, which provide certain benefits that mutual funds do not.

One of the key features of segregated funds is the guarantee on the capital invested after a certain period, typically 10 years. This provides a level of security that is particularly attractive to conservative investors or those approaching retirement, as it helps protect their investment against market fluctuations. Additionally, in certain situations, the death benefit paid to beneficiaries can be higher than the market value of the fund at the time of death, offering further financial security.

Moreover, segregated funds have tax advantages related to the way gains are realized, which can be beneficial for an investor's tax planning strategy. For instance, capital gains within a segregated fund may not be taxed until the investor redeems the funds, allowing the investment to potentially grow tax-deferred. This is an appealing aspect for investors looking to enhance their overall return on investment while managing their tax liabilities.

In contrast, traditional mutual funds do not offer the same level of capital protection or death benefit guarantees, making segregated funds a more attractive option for those prioritizing