Mutual Funds

Mutual funds are one of the most popular investment products in Canada, allowing everyday investors to own a diversified portfolio of stocks, bonds, and other assets without needing a large amount of capital.


In fact, nearly 5 million Canadian households invest in mutual funds, with total mutual fund assets around $1.9 trillion (more than the country’s top five pension plans combined).


Costs and Fees

Mutual funds charge a fee called the Management Expense Ratio (MER), which covers the fund's management and operating costs. MERs vary by fund; actively managed equity funds tend to be higher fee, whereas index funds or fixed-income funds are lower.

Over the past decade, fees have been declining – the average asset-weighted MER for Canadian long-term mutual funds is about 1.47% (down from 2.06% in 2013). This means on average about 1.5% of a mutual fund investor's assets per year go toward fees.

In exchange, investors get professional management, research, trading, reporting, and administration. While these fees do reduce returns, many Canadians find the value worthwhile, especially if the fund provides strong returns or specialized expertise they couldn't easily replicate.

How Mutual Funds Work in Canada

When you buy units of a mutual fund, your money is combined with other investors' money and invested according to the fund's objectives. Funds come in many varieties, from conservative money market and fixed-income funds to aggressive equity or sector funds.

Each mutual fund has a professional manager (or team) that selects the fund's investments and makes day-to-day decisions. The fund may hold dozens or even hundreds of different securities. This professional management and oversight can be very valuable for investors who don't have the time or expertise to manage a complex portfolio on their own.

Mutual funds in Canada are regulated and must adhere to rules on diversification, disclosure, and valuation. Investors receive updates through simplified prospectus documents and Fund Facts sheets that explain the fund's holdings, performance, and fees.

Benefits of Mutual Funds for Investors

1

Diversification

Because each fund holds many investments, the impact of any single holding's decline is cushioned by others. A typical Canadian equity mutual fund might invest in dozens of companies across banking, energy, technology, and other sectors.

2

Convenience and Flexibility

Investors can contribute small amounts (often as low as $25 or $50 a month) and the fund will automatically invest it according to the strategy. This makes mutual funds ideal for individuals who want to automate their savings plan.

3

Access to Global Markets

Mutual funds give Canadian investors a gateway to global opportunities. With a modest amount, you could buy into an international equity fund and instantly own companies across Europe and Asia, or a real estate fund that owns commercial properties.

4

Matched to Risk Profiles

Mutual funds can be matched to different investor risk profiles. There are conservative funds, balanced funds that mix stocks and bonds, and aggressive equity or sector funds aimed at growth-oriented investors.

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Making the Most of Mutual Funds

To get the most benefit from mutual funds, Canadian investors should choose funds that align with their objectives and monitor their performance and fees. It's wise to review your mutual fund portfolio annually to see if it's still on track.

Be sure to compare MERs and understand what you're paying for. If two funds have similar strategies and track records, but one charges 2% and the other 1%, that fee difference can significantly impact your wealth over long periods.

Remember that mutual funds are just one tool in an investor's toolkit. They work excellently as core holdings. Around them, you might also consider other products based on your needs – for instance, Segregated Funds for insurance guarantees, or GICs for guaranteed savings.

Mutual funds have empowered millions of Canadians to reach their financial goals through diversified investing. To explore how mutual funds could strengthen your investment plan, or to review your existing fund portfolio for opportunities to improve performance or reduce fees, book a free consultation with our advisors.

We’ll provide personalized guidance on fund selection and asset allocation to ensure your investments are on track to meet your needs. Schedule your consultation today, and take the next step toward financial confidence with a tailored mutual fund strategy.

Tax Considerations and Account Types

Mutual funds can be held in all account types – registered plans like RRSPs, RRIFs, TFSAs, RESPs, and non-registered investment accounts. In registered accounts, any interest, dividends or capital gains that the fund distributes are tax-sheltered.

In non-registered accounts, fund distributions are taxable to the investor each year. Mutual funds do pass through the character of income to investors: for example, Canadian dividend income from the fund qualifies for the dividend tax credit, and capital gains distributions are taxed at the favorable capital gains inclusion rate (50%).

It's also important to note that mutual fund units fluctuate in value. They are not guaranteed products like GICs. The value of your investment will rise and fall with the market value of the fund's holdings.

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