Canadian Securities Course (CSC) Level 2 Practice Exam

What is a unique feature of segregated funds compared to other investment options?

1. Direct trading on the exchange

2. Lower risk due to pooled investments

3. Provision of death benefits and maturity guarantees

4. Restriction on the types of underlying assets

The correct answer is: Provision of death benefits and maturity guarantees

The choice highlighting the provision of death benefits and maturity guarantees as a unique feature of segregated funds is correct. This characteristic distinguishes segregated funds from many other investment options, such as mutual funds or standard equity investments, which do not typically offer such guarantees. Segregated funds, which are structured as insurance products, provide investors with a level of protection beyond standard investment returns. Specifically, they often come with a guarantee that a certain percentage of the original investment will be returned to beneficiaries upon the policyholder's death, as well as a maturity guarantee that ensures a minimum value at the end of a specified period, provided that the fund is held until maturity. This blend of investment opportunity and insurance-like safety attracts individuals looking for more security in volatile markets. In contrast, the other options do not capture the essence of what makes segregated funds distinct. Direct trading on the exchange applies to items like stocks and ETFs but not typically to segregated funds, which are managed by insurance companies and traded through them. Lower risk due to pooled investments is a general characteristic of many mutual funds and other pooled investment vehicles, not uniquely applicable to segregated funds. Similarly, while there may be restrictions on the types of underlying assets within any investment vehicle, this is not a