Types of investment funds

Today we continue our up close look at types of investment funds, by taking a closer look at segregated funds, closed end funds, and exchange traded funds.

A closed-end investment fund is a fund that issues a limited number of units or shares, which may trade on a stock exchange.

It may be difficult to buy or sell some closed-end funds if they are not listed on an exchange or they have a low volume of trading activity. As with mutual funds, the level of risk and return depends on what the fund invests in.

An exchange traded fund or ETF is, quite simply, an investment fund that trades on a stock exchange (sometimes these names really are self-explanatory). ETFs typically follow an index but some are more actively managed.

The fees and expenses for an ETF are often lower than what you would pay for a traditional mutual fund. If an ETF simply follows an index, the manager doesn’t have to do as much research into investments or as much buying and selling of investments. The level of risk and return depends on what the fund invests in.

Segregated funds combine investments with insurance coverage, and are issued by insurance companies. The assets are held separately from the insurance company’s other assets.

You buy and sell segregated funds under an insurance contract. The contract comes with a guarantee that protects some or all of your investment if the markets go down. You generally have to hold the contract for 10 years to get this guarantee.

Contracts usually have a death benefit that guarantees the amount your beneficiaries will receive.

You pay similar fees as with mutual funds, but with an annual insurance cost as well.

This was the eleventh post in our Investments at a Glance series. Next, we close the series with a look at commodity pools and labour sponsored investment funds.