Tax Advantages of Segregated Funds versus Mutual Funds

Following from yesterday’s post on year end mutual fund distributions, I should point out that Segregated funds (which are very similar to mutual funds in that they are essentially investment funds but with certain guarantees on capital over time or upon death) are markedly different. Specifically:

1. Segregated funds (seg funds for short) can flow through capital LOSSES to the contract holder. These capital losses can be carried back 3 years, or forward indefinitely. Mutual funds cannot do this.

2. Seg fund distributions can be time-weighted (it depends on the company in question). This means that if you invested for only two months, you will get 2/12ths attribution on the distributions (interest, dividends or capital gains). This does not exist for mutual funds. Again as noted yesterday, if you invest in December before the year-end distributions are made, you could be taking on someone else’s tax liability.

These are not inconsequential differences!

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 7 comments
  • rajiv verma

    Hi Preeet

    Like your way of explaining complex financial information in a simple way..i mean speaking a common man’s language..Congratulations
    Rajiv

  • sathya

    hi Preet,

    what’s your involvement in pro financial segregated funds…
    could you please post ana rticle on those seg funds…fees, guratees etc…

    thanks
    sathya

    • Preet

      Hi Sathya, I work for Pro-Financial Asset Management which is the equity manager for the products. For more information on that, please visit http://www.pro-financial.ca

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