Canadian Securities Course (CSC) Level 2 Practice Exam

What does the term "Segregated funds" refer to?

1. Investment funds traded on the exchange

2. Insurance-based pooled investments

3. Debt obligations issued by a bank

4. Assets managed by an investment advisor

The correct answer is: Insurance-based pooled investments

The term "segregated funds" refers to insurance-based pooled investments. These funds are similar to mutual funds in that they gather money from multiple investors to invest in a diversified portfolio of securities. However, what sets segregated funds apart is their structure as insurance products. They are offered by insurance companies and provide certain benefits such as a guarantee of principal or death benefits, which can be appealing for risk-averse investors. Segregated funds may also offer a combination of investment growth potential with the added security of insurance features. This can help provide peace of mind to investors who are looking for a balance between investment returns and protection against market fluctuations. Other options, although potentially valid in their own contexts, do not accurately capture the essence of what segregated funds are designed to accomplish or how they function within the investment landscape.