Mutual Funds, Fund Facts & Fees

Mutual funds are a popular investment choice for many Canadians. But understanding what you are investing in, how it fits into your investments, the fees, and the Fund Facts, are important in determining whether mutual funds are right for you.

Mutual Funds

A mutual fund is a collection of investments, such as stocks, bonds, treasury bills and more. When you invest in mutual funds, you are pooling your money with other investors. This lets you spread your money across a variety of investments, which can generally lower or balance your risk.

Why might Mutual Funds be a good option for you?

• More diverse portfolio – not all investments perform well at the same time. When one investment is down, another might be up
• Simple hands-off approach – mutual funds are managed daily by an investment professional
• Risk Rating – the risks associated with mutual funds range between low risk to high risk
• Initial entry into the fund might be lower, allowing even small investors to get into the market
• A pooling of funds allows you to invest in a variety of companies within a single investment vehicle

Mutual funds can be held within an RRSP, RESP,  TFSA or cash account, and are offered for sale by banks, credit unions, mutual fund dealers and investment dealers.

Mutual Fund Costs

When shopping for a mutual fund, a key consideration for many investors is the cost, which is disclosed in the Fund Facts. The costs you are assessed will have an impact on the overall value of the account. These are the costs you should be aware of:

1. Sales Charges – These charges, often a percentage of the amount you’ve invested, are either charged when you buy or sell your units or shares.
2. Management Expense Ration (MER) – The MER accounts for the fund’s operating expenses and management fee (often including a “trailing commission”). These expenses are taken from the fund directly (i.e., you aren’t required to pay a bill), and is expressed as an annual percentage of the fund’s total value.
3. Other – this may include fees charged to switch funds, open or close an account etc.

Tip:  What you pay, and how you pay for a mutual fund is important to understand.  If it’s not clear, ask your adviser, financial institution or review the FundFact sheets.  And ask questions, like “why is this fee structure in my best interest?” before you invest.

Fund Facts

Before you purchase a mutual fund it is a requirement that you are provided with the Fund Facts sheet. This may happen in person or be offered as a link to download the information.

The Fund Facts sheet is a simplified document that outlines important information you need to know about the mutual fund you’re considering. It includes information on:

• What the fund invests in, including the top 10 largest investments in the fund
• The risk rating for the fund
• The fund performance (up to 10 years back)
• Costs associated with owning the fund, including sales charges, the Management Expense Ratio (MER) and other fees

Tip: Be sure to always get – and read – the Fund Facts about a mutual fund.  Ask your adviser, or, if you’re buying online through a discount or self-serve brokerage, download the materials. If there’s something you do not understand – ask questions!

This document can help you to determine if a particular investment is right for you.

For more information on mutual funds, read the Manitoba Financial Services Agency’s mutual funds brochure.