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Tuesday, August 12, 2008

Exchange-Traded Funds and Segregated Funds

From The Hoss's Mouth


Exchange-traded funds and segregated funds are the topic of today's Hoss Cents Free Financial Money Magazine post. The first to enter the starting gate will be:


Exchange-Traded Fund (ETF): A fund that trades on a stock exchange and holds the same mix as a stock or bond market index. Some ETFs are actively managed more than others but they usually follow a stock market or bond market index. Just like a mutual fund, your profits are a trifecta made up from earned interest, dividends and/or capital gains. When you sell your units or shares, you will have a further capital gain or loss depending on the selling price as compared to your purchase price.

When you purchase or sell units or shares of an ETF you will pay a commission. Management fess and operating costs are the responsibility of the fund. As with other fund types, the risk is dependent on the type of fund you choose to invest in.

mutual funds

NOTE: When an ETF manager simply follows an index, less buying, selling, and research is required by him or her, therefore an ETFs fees and expenses are frequently lower than that of a regular mutual fund.


Segregated Fund: Investment funds combined with insurance coverage. It is an insurance product. Once again you hit the trifecta: earned interest, dividends and/or capital gains are your method of profit. Capital gains or losses also occur on the sale of your units or shares. These funds have the same cost as mutual funds and they have an annual insurance cost.

Insurance companies issue segregated funds and they hold these assets separate from other assets.

Segregated funds are bought and sold under an insurance contract. In most cases, if you hold the fund for ten years, all of your investment is protected against a market down turn. They typically come with a death benefit that guarantees a certain amount to your beneficiaries.

Risk, once again, is dependent on the fund type.

The Hoss and Mrs. Hoss have scheduled some personal time, so until next post time...

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Labour-Sponsored Investment Funds and Commodity Pools

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