What’s the difference between mutual funds and segregated funds?

Canada Life - Sep 18, 2023
Mutual funds and segregated funds are both investment options, but they have some key differences
Two people talking about options

When it comes to investing your hard-earned money, it's important to explore your options. Two popular choices are mutual funds and segregated funds. Each investment option offers unique benefits you should consider. Let’s look at both and see what might work for you.  

What’s a mutual fund?  

A mutual fund lets investors pool their money together into a fund managed by a professional investment company. It’s a simple, easy and accessible way to invest.  

What’s a segregated fund? 

Segregated fund policies combine characteristics of insurance and mutual fund investments together. This means you can grow your investments in the financial market, while insurance protection guarantees some or all of your initial investment. Think of it like investing with a safety net. 

How do they work? 

Mutual and segregated funds work the same way.

For both investment options, money is pooled together for the benefit of the investors, and to buy a variety of different investments – for example, stocks and bonds – based on the fund’s investment goals. This does two things: 

  1. It gives you access to investment managers, which may make it easier for you, since investing on your own can be complicated. 
  2. It spreads your money among different investment options, to help reduce investment risk. For instance, if you put all your money in one stock, and it goes down, you could be in trouble. Segregated and mutual funds split money among various investment options held in a single fund, so there’s less risk.   

What’s the differences between mutual funds and segregated funds? 

Category  Mutual funds Segregated funds 
Type of investment A pool of money spread across different investments, managed by experts. A pool of money spread across different investments, managed by experts. 
Guarantees  None Insurance guarantees can protect much or even all your original investment at death and policies maturity date.
Fees Less than segregated fund policies More than mutual funds due to paying a premium for the insurance guarantee
Variety of investment options Similar Similar
Estate planning  Mutual funds held within a registered plan, the proceeds are passed on to your named beneficiaries when you die. No probate tax.  When you die, proceeds go directly to your named beneficiaries and won’t flow through your estate. No probate tax. 
Potential creditor protection  For mutual funds held within a registered plan, bankruptcy protection may apply.  Yes1 


Understanding the differences between mutual funds and segregated funds is crucial when building your investment strategy. The right choice depends on your individual financial goals, risk tolerance, and circumstances.  

Let’s connect 

I’m here to support you and help ensure your investment decisions align with your unique needs. Let’s schedule time to review your financial goals, so we can determine the best investment option to meet your goals. 


1 Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it can never be guaranteed. Talk to your lawyer to find out more about the potential for creditor protection for your specific situation.