Creditor protection
For tax purposes, seg funds are deemed to be trusts. An investor is not referred to as a unit holder because seg funds do not issue units or shares. Rather, the investor is a contract holder. Any reference to units is a notional term for the purpose of determining the value of the seg fund contract. Because the seg fund contract is designed under life insurance legislation, creditors have difficulty seizing the asset in a bankruptcy. This can be beneficial for business owners, who are often exposed to more financial risk.

Mutual fund companies offer unique seg funds that purchase units of their own existing mutual funds and are packaged with an insurance guarantee component. The seg fund receives distributions from the assets held, such as stocks, bonds, or units of an underlying mutual fund.

Depending on the assets held, distributions can include Canadian dividends, foreign income, other income, and capital gains. A seg fund may realize capital gains upon a disposition of fund assets (including a redemption of mutual fund units). It is also possible for a seg fund to incur capital losses upon the disposition of fund assets. Fund income, capital gains, and capital losses are allocated annually to the contract holders.