Segregated Fund Calculator Canada

What the segregated fund calculator does

A segregated fund offers guarantees, a minimum at maturity and a minimum to a beneficiary on death, each a percentage of your deposit, in return for an MER typically two or more points above an ETF with the same mandate. Enter the deposit, the expected return before fees, the term, both MERs and both guarantee levels. The tool compounds the money both ways, compares the projected value with the guaranteed floors, and reports the cost of the wrapper, what the guarantee would add and the return below which the maturity guarantee pays.

A worked example

$100,000 for 15 years at a 6% gross return, with a 2.75% segregated fund MER against a 0.25% ETF, a 75% maturity guarantee and a 100% death benefit. The segregated fund grows to about $161,566, a 3.25% effective return; the ETF to about $231,316, at 5.75%. The wrapper costs about $69,750, about 30% of the ETF outcome or about $4,650 a year on average. Both guarantees add nothing at this return, since the fund ends well above the $75,000 and $100,000 floors, and the maturity guarantee would pay only if the gross return averaged below about 0.85% a year for the whole term.

How the guarantees work

At maturity, commonly after ten or fifteen years, the insurer pays the greater of the account value and the guaranteed floor. A parallel promise applies on death, usually at a higher percentage, payable to your named beneficiary. Seventy-five per cent at maturity and one hundred per cent on death are common, though other combinations exist. They are separate promises with separate triggers, shown as distinct lines.

Both floors are reduced by withdrawals and usually depend on holding to maturity. Some contracts offer resets that lock in a higher floor after a strong year, at extra cost. This tool assumes a single deposit held untouched to the end of the term.

What the wrapper costs

The MER comes off the return before the account grows, so a 2.75% fund against a 0.25% ETF gives up 2.5 points every year, compounded. Over fifteen years that costs far more than fifteen times 2.5%, because money paid in fees never compounds. On a long term at ordinary returns the wrapper can take close to a third of the final result. The effective return lines show the gap the way an investment statement would.

Reading the break-even return

The break-even is the average gross annual return over the whole term below which the maturity guarantee tops up the contract, determined by the guarantee level, the term and the MER. With a 75% floor over a long term it is usually very low, meaning markets would need something close to a lost decade and a half before the guarantee paid anything. With a 100% floor it equals the MER, because any gross return below the fee leaves you with less than you put in. The guarantee insures against a bad average across the term, not a bad year.

What the calculator leaves out

It does not price three real benefits: payment directly to a named beneficiary, which generally avoids probate fees and delay; possible protection from creditors when the beneficiary is in a protected class, which matters to business owners and professionals; and the behavioural value of a guarantee that keeps some investors invested through a crash.

It also leaves out sales and deferred sales charges, the cost of reset options, the effect of withdrawals on both floors, and the annual taxation of allocations from a non-registered contract. If the fee figure is already large, these will not improve the case.

How to use the result

Read the wrapper cost, then what the guarantee adds at your expected return, then the break-even. If the guarantee adds nothing and the break-even is far below any return you think plausible, you are paying for insurance against an event you do not expect, which can still be a reasonable choice if made with the price in view. Then lower the return until the guarantee starts to pay and see how much it pays; set against the fee, that is the real comparison.

This is an estimate for planning, not a quotation or financial advice. Terms, guarantee levels, MERs and resets vary by insurer and fund class; read the information folder and confirm the numbers with a licensed advisor before committing money.

About This Segregated Fund Calculator

Use this segregated fund calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.