Segregated funds were initially developed by the insurance industry to compete against mutual funds. Today, many mutual fund companies are in partnership with insurance companies to offer segregated funds to investors. Some unique benefits that are not available to mutual fund investors are offered by segregated funds.

These are the major benefits that are not offered by the traditional mutual fund but are offered by segregated funds.

A guarantee of principal upon maturity of the fund or upon the death of the investor is offered by segregated funds. This means that even if the market value of the investment has declined, there is a 100% guarantee on the investment at maturity or death, though this may differ for some funds, minus any withdrawals and management fees. Having a maturity of 10 years after your initial investment are most segregated funds.

Segregated funds also offer creditor protection. If you go bankrupt, then creditors won’t be able to access your segregated fund.

Estate probate fees are avoided by segregatd funds upon the death of the investor.

A “frozen option” which allows investors to lock in investment gains is what segregated funds have and this can increase their investment guarantee. During volatile capital markets, this can be a powerful strategy.

Segregated funds also offer the following less important benefits:

A T3 tax slip each year-end is issued by segregated funds and this reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.

Segregated funds can serve as an “in trust account,” which is useful if you wish to give money to minor children, but with some strings attached.

The basis of how long an investor has invested in the fund during the year is where segregated funds allocate their annual distributions on instead of the basis of the number of units outstanding. Because of mutual funds, an investor can immediately incur a large tax bill when a capital gain distribution is declared at year-end if they invest in November.

A lot of marketing and publicity has been surrounding segregated funds as well as how much value should be placed on their guarantee of principle protection. During any 10-year period since 1980, there have only been three very aggressive and specialized funds that lost money in the entire mutual fund universe. This means that there are extremely low chances that you will be losing money after 10 years. It can cost as much as percent per year in additional fees if you decide you need a guarantee.

But these guarantees can be very worthwhile with further market volatility. Don’t forget that most major mutual fund companies also offer segregated funds.

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The basic definition of a hedge fund is not something one would come up with overnight. In the past, hedge funds were defined as a “hedge”, or a fail-safe against unexpected stock market declines, as they would sell the stock market short. However, right now this is a term that could apply to just about any private investment partnership. And when it comes to hedge funds, thousands are now in existence over the world. And their goal would generally be to make as much money as possible through myriad investment strategies and through different ways of investment. The strategies involved here are usually more obtrusive than the rather conservative approaches used by mutual funds.

Hence, a hedge fund would actually be a private investment fund engaged in a cornucopia of investment types or sources. The general partner chooses the different investments and also handles all of the trading activity and day-to-day operations of the fund. As for the limited partners, or investors, they would simply invest the money, or most of it, and gain profits from the fund. The general manager, in most cases, charges a management fee of nominal value, and large bonus for incentives in the event of a high ROI (return on investment).

There are several differences between mutual fund and hedge fund, even as the above example is very similar to how a mutual fund works.

Mutual funds are operated by mutual fund or investment companies and are heavily regulated. Since hedge funds are private funds, the restrictions are considerably fewer in number.

While mutual funds would only invest their client’s money, hedge funds would invest money from two sources in their investments – both from the clients and their own pockets.

Hedge funds charge the same performance bonus as equity market returns – about 20 percent of any gains beyond a specific hurdle rate. Some hedge funds have been able to generate annual rates of return of 50 percent or more, even during difficult market environments.

Again, mutual funds are subject to many stringent requirements and policies, and this may include, but is not limited to short selling, investing in commodities, investing in offshoots of other products or unfair use of leverage. However, hedge funds allow much more freedom – you can invest in whatever way suits you.

Because hedge funds are forbidden from soliciting investments, this may be why most of you may not be familiar with them. During the previous five years some of these funds have doubled, tripled, quadrupled in value or more. But there is an inherent risk to hedge funds, and there are a similar amount of funds that sank like the Titanic, so be careful.

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Day trading consists of the direct opening and closing of stock positions with major stock exchanges, either using a computer on the trading floor of a branch office of a day trading firm, or using one’s home or business computer to access an internet broker. DIRECT is the operational word in the above definition. Day trading would require the trader to have direct electronic access to one or two sources – the stock market cognoscente of NASDAQ (also known as market makers) and/or a dedicated specialist from the NYSE.

In this case, the market makers would be NASD dealers and brokers, who trade NASDAQ stocks for other individuals or business entities, and involve themselves in securities to abet them in handling their proprietary accounts. These market makers are essentially stock merchants by trade. One NASDAQ stock will have many market makers who are continuously trading in that stock and thus making a market for that stock. Each NYSE stock, on the other hand, only has one assigned specialist.

On the other hand, one NYSE stock will have one assigned NYSE specialist. This would be a dedicated NYSE specialist whose aim is to monitor that security and keep the trading fair and organized. The specialist can serve his/her duty as a dealer or as a broker – as a dealer, he/she would act as the chief point person when trading for their account, as a broker, he/she can carry out orders on behalf of other securities brokers. The specialist would need to play a principal, or sovereign role because somebody, after all, would be needed to make sure the security remains marketable, and also to nullify any existing discrepancies in said stock’s supply and demand.

The day trader is somebody who does not rely on a stockbroker. The trader is not using a telephone to call a stockbroker, and the broker is not relaying that order to the brokerage firm’s order desk. The clerk’s job of routing said order to the market maker is also superfluous. None of that exists with day trading firms. To put it informally, day trading firms are “cutting out the middlemen”, as none of the above characters have to work on trade orders, thus eliminating delays to expediency and additional costs above budget. Day traders, in essence, act as their own brokers, and they process orders quickly and inexpensively.

The day trader can simply key in the stock symbol on a computer that has specialized trade execution software, press the appropriate function key, and buy or sell shares of stock on a major exchange. The software used by the day trading firms for order execution is relatively user-friendly7 and provides an efficient interface between the stock exchanges and the day trader.

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