Planning for retirement is not just about growing money—it’s about making sure it’s safe when you need it most. In Canada, mutual funds and segregated funds are two of the most common ways pension funds and individual investors build their future wealth.
Both pool money from many investors and are professionally managed, but they work differently when it comes to protection, guarantees, and long-term confidence. A new Canada Life survey reveals that while many people like both products, segregated funds are trusted more to deliver on future goals.
This article explains the key differences, what pension plan members can expect from each, and why understanding them matters for financial security.
What Mutual Funds Are and What to Expect
Mutual funds let many investors pool their money together. A professional manager picks investments—like stocks and bonds—so you don’t have to research everything by yourself. They are easy to access, often through banks or investment firms, and usually have lower fees. But mutual funds don’t offer any guarantees—the money you invest can go up or down depending on market performance.
Key points:
- Pooling of money
- Professional management
- Regulated under securities law
- Typically low cost
- No principal guarantees
- Often used in group retirement plans
What Segregated Funds Are and What to Expect
Segregated funds are similar to mutual funds in that you pool money and have a manager. But these are regulated under insurance law, not securities law. This means they often include built-in guarantees—for example, ensuring you get at least your original amount back if you hold until maturity or die. They may also offer creditor protection, and help skip probate (the legal process after someone dies). This gives people more peace of mind, especially when planning their estate or worrying about risk.
Key points:
- Pooling of money
- Professional management
- Regulated under insurance law
- Include guarantees (e.g., on maturity or death)
- Possible creditor protection
- Simplifies estate planning
- Usually higher fees than mutual funds
Survey Results: What Canadians Think
A national survey by Abacus Data for Canada Life found:
- 63% of investors are satisfied with their mutual funds, but only 43% feel confident these will meet long-term goals.
- 74% are satisfied with segregated funds, and 61% of those feel confident about future results.
This shows while people like both types of funds, they trust segregated funds more to deliver on long-term plans.
Comparing Mutual Funds and Segregated Funds
| Feature | Mutual Funds | Segregated Funds |
|---|---|---|
| Regulation | Securities law | Insurance law |
| Fees | Generally lower | Generally higher |
| Guarantees | None | Principal guarantees at maturity or death |
| Creditor/Court Protection | No | Often available |
| Estate Planning Advantage | No | Can bypass probate, go directly to beneficiaries |
| Investor Confidence (Long-term) | Lower (43%) | Higher (61%) |
Why People Feel More Secure With Segregated Funds
- Built-in protection gives peace of mind, especially in uncertain times when markets drop.
- Estate benefits let money go directly to family, avoiding legal delays and expenses.
- Risk averse investors (who don’t like losing any of their money) may prefer the predictability of segregated funds.
- Volatile markets, inflation, and global instability make people worry more about how safe their money is—not just how much it grows.
Education Gaps and What’s Missing
The survey also showed that many Canadians—and even some pension plan sponsors—don’t fully understand the differences between mutual and segregated funds. Lack of familiarity, worries about risk, and limited advice are holding them back.
- Plan sponsors need to learn more about both options and their pros and cons.
- Working with financial advisors who offer goal-based education can help. These advisors can explain options based on feelings as well as finances—framing choices as about security, peace of mind, and long-term resilience, not just returns.
In times when people worry about money, markets, and the future, having reliable backup matters. Mutual funds are popular and cost-effective, but they don’t guarantee anything.
Segregated funds, though costlier, bring stability, protection, and benefits that matter for long-term retirement and estate planning. Yet, many pension plan sponsors and investors don’t fully grasp these differences.
Education and advisors who focus on whole-person needs—security, confidence, legacy—matter most. Choosing between mutual and segregated funds isn’t just about growth—it’s about feeling supported and ready for whatever comes next.
FAQs
What is the main difference between mutual funds and segregated funds?
Mutual funds offer professional management and low fees but no guarantees. Segregated funds are like mutual funds with added protection—they include guarantees and estate benefits, though they cost more.
Why do more people trust segregated funds over mutual funds?
Because segregated funds promise protection of your money (if held to maturity or death) and offer estate planning benefits, many people feel safer and more confident about long-term results.
What should pension plan sponsors do to choose better?
They should learn the features of each fund type, understand members’ emotional needs, and work with advisors to create secure, goal-oriented plans—not just focus on returns or numbers.