22 Flashcards
What is the structure of segregated funds?
Segregated funds are insurance contracts called individual variable insurance contracts.
Who regulates segregated funds?
Provincial insurance regulators. There are three:
Canadian life and health insurance association (provincial and regulates the sale of seg funds)
Office of the superintendent of financial institutions (regulates federally regulated companies)
Assuris is the self financing of protection against loss and insolvency
What does Assuris cover?
Assuris guarantees only the death benefit and maturity guarantee for a seg fund.
What is the maximum amount that Assuris covers?
Under an individual seg policy Assuris covers $60,000 or 85% of the guaranteed amounts, whichever is higher. Includes Reg (rrsp, rrif, resp) and non reg
What is the ownership of seg funds?
No units or shares but assigned notional units of the contract.
Who is the contract holder of a seg find?
The contract holder is the person who buys the seg fund contract. For non reg, the contract holder and the annuitant can be different people
Who is the annuitant of a seg fund?
The annuitant is the person whose life is insured by the contact. For a reg account the annuitant holder and the annuitant are the same person. If not, they must have an insurable interest or consent in writing
Who is the beneficiary of a seg fund?
The person who will receive the benefits payable upon the death of the annuitant.
What are the different between a revocable and irrevocable beneficiary?
Revocable - the contract holder can alter or revoke
Irrevocable - contract holder cannot change the rights without the beneficiary’s consent
What at the options of maturity guarantees?
Provincial legislation requires that the maturity degree be at least 75% of a least a 10 year holding period.
Some offer 100% with 15 years. Can have higher MER
Do maturity guarantees have age restrictions?
75% guarantees over 10 years may have age restrictions ie 80 years old when the policy is issued. Could be that policy protection reduced at a certain age
What are set fund reset dates?
Seg finds have a 10 year term they can be renewable depending on the annuitants age. A reset allows you to lock in the current market value for a new 10 year period
Do sev funds have death benefits?
The death benefit ensures that the beneficiary or estate receive the guaranteed amount
Do seg funds have creditor protection?
Unique in that they offer protection from creditors in the event of bankruptcy. The assets are actually owned by the insurance company
Do seg funds need to be probated?
Seg funds are not considered part of the estate and so they are not subject to probate
What are the costs associated with seg funds?
In additional to sales fees, switching fees, trailer fees and management fees, there can be additional fees associated with the death benefit
How are seg funds taxed?
Seg funds are taxed as though they were trusts. Passed on to the holders
How do seg funds calculate income?
The income is calculated using allocation. A percentage of the income is allocated to each unit. You can be taxed on the gain
What is a labour sponsored venture corporation
LSVCC are managed investment funds sponsored by labour organizations to provide capital for small and emerging companies
What are the benefits of LSVCC
Investors receive federal tax credits and some provincial tax credits. Usually 15% for each but not all. Between 15-32.5% total depending on where you are
What are the annual limits of LSVCC?
There are no maximum amounts an investor can contribute. The federal tax credit is available on a max of $5,000. Unused amounts cannot be carried forward
Can you buy LSCCV in an RRSP?
Yes! You can get the RRSP AND LSVCC credits together. Can also buy in a TFSA
What is the risk profile of LSVCC?
Considered high risk and speculative because of the nature of the companies in which they invest
What are other restrictions for LSVCC?
Have to hold for 8 years or else pay back the federal tax credits. Some provinces allow for immediate redemption. Can have high cash reserves and MERs
What is a closed end fund?
Closed end funds are pooled investment funds that raise capital by selling a limited number of shares
Where can you buy closed end funds?
Can be bought on the stock market. Can trade at par, premium, or discount to a bond
What kind of closed fund can buy back their shares?
Interval or closed end discretionary funds
What is a closed find suited for?
Illiquid or alternative strategies like real estate or private equtiy
What are the benefits of closed ends funds?
Diversification, different opportunities like short selling or lower cash reserves. Can concentrate of long term holdings, easier to calculate acb and lower mers
What are the disadvantages of closed end funds?
Do not always taste at their NAVPS, less liquid, no automatic reinvestment of distributions.
What is an income trust?
Investors purchase ownership interests in the trust which then hold interest in the operating assets of a company.
Can be traded on the market
What are the two main types of income trusts?
REITS purchase real estate properties and pass on the rental income
Business trusts purchase the assets of underlying companies
What are some of the risks of REITS?
Quality of the properties
State of the tenant leases
Costs of debt financing
Natural disasters
What is the tax treatment of income trusts?
The income trusts pays tax and the distributions are taxed in the hands of the investor. REITS only distribute the taxes directly to the holders
What is private equity?
Private equity is the financing of firms unwilling or unable to find capital using public means. Can be private equity or private debt
High reward and high risk. This also includes venture capital
What are some ways that private equity investors can provide finance to firms?
Leveraged buyout
Growth capital
Turnaround
Early or late stage venture capitalism
Distressed debt
Mezzanine financing
