Segregated Funds & Annuities - Chapter 2
- Segregated Funds Questions and
Correct Answers the Latest Update
A segregated fund is also known as what?
✓ An Individual Variable Contract or IVIC
What investment fund would be most appropriate when an objective is to (for
example) purchase a house in the near future, and why?
✓ Money Market Fund. 95% of the net assets must be invested in cash or cash
equivalents such as treasury bills, short-term Government bonds, etc. This is the
lowest-risk fund type that can be used for short-term investing or as an emergency
fund. (Note: Due to the low level of risk, a money market fund will have a lower
expected return as compared to other fund types).
Which memory aid is used to remember the risk level associated with each type
of fund, from lowest to high (in general)?
✓ Mickey Mouse's Big Brother Dated Every Rich Singer
Name each type of fund, ranked from lowest to highest level of risk;
✓ Money Market Fund
✓ Mortgage Fund
✓ Bond Fund (Fixed Income)
✓ Balanced Fund
✓ Dividend Fund
✓ Equity Fund
✓ Real Estate Fund
✓ Specialty Fund
Which one of the following funds would have the HIGHEST risk? Fixed Income
Fund, Real Estate Fund, Dividend Fund, or Equity Fund?
✓ Real Estate Fund (in order to be classified as a real estate fund, at least 90% of the
fund's assets must be invested in residential, retail, commercial and industrial
properties. This type of fund earns rental income on properties, has the potential to
earn capital gains income on properties, and has the potential to earn interest
income if the fund also invests in mortgages. In an extremely illiquid market, a real
estate fund reserves the right to suspend redemption privileges. The rationale behind
doing so is that selling properties at a loss hurts all unit holders).
A segregated fund is protected from creditors during an investor's lifetime if:
✓ An irrevocable beneficiary is named, or a revocable beneficiary is named and that
beneficiary is part of the protected class.
Who falls under the protected class with a seg fund?
✓ Parent, spouse, child or grandchild.
Felicity invests $10,000 into an RRSP. The funds were later used to purchase
units in a segregated fund. Over the years, the fund earned $3,245 in dividend
allocations as well as $1,250 in interest allocations. Felicity is now withdrawing
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