Financial Planning

Mutual Funds

Mutal Fund Basics

A mutual fund is simply an investment vehicle that allows many people to pool their money in a fund that allows professional money managers to pursue a specific "mutual" financial objective. When you invest in a mutual fund, you purchase shares of the fund. Each share represents partial ownership of the fund's portfolio of securities - and just like buying a stock, the number of shares you own depends on the amount you invest and on the price of each share. You can track mutual fund share prices - also called the net asset value or NAV - in the financial listings in most major newspapers, or by setting up funds you are interested in following in a quote list in the secured client access area of this site. A fund's NAV may fluctuate daily, rising or falling as a result of investment activity and market fluctuations. For funds actually held in your brokerage account, you will also receive regular statements and shareholders reports from the fund sponsor that will help keep you informaed about how your investments are performing. Through your brokerage account with us, you have access to one of the largest selections of mutual funds in the business. When properly selected, mutual funds combine professional management, ease of purchase and redemption, simple record keeping, and risk reduction into a vehicle that is easy to buy or sell. You could go to each mutual fund company and open an account, but we offer the convenience of letting you hold many funds from different families in one account while getting an easy to understand central record of you holdings.

Categories of Mutual Funds

There are three basic types of funds available to you through your account.

Load Funds This is what the brokerage industry calls funds that have a stated sales charge. When an amount is stated as a load, it refers to either the maximum initial or deferred sales charge for that fund. Front-end loads (also called initial loads) this figure is expressed as a percentage of the initial investment and is incurred upon purchase of fund shares. Deferred sales charges (also called back-end loads or contingent deferred sales charges) are amounts charged based on the lesser of the initial or final value of the shares sold.

No-Load Funds This type of fund charges no sales or 12b-1 fees. There is a flat rate transaction fee charged for buying or selling funds in this category.

No Transaction Fee Funds Funds in this category have neither a sales charge (load) nor do we charge a transaction fee for these funds. Fees in this category typically have a 12b-1 fee assessed that covers the fund expenses.

Why invest in mutual funds?

Professional Management Investment professionals, who have the knowledge and expertise to track the market, analyze, buy and sell securities that fit the investment objectives of the fund, manage mutual funds. Most portfolio managers have extensive educational and professional credentials, as well as many years of experience.
Diversification Buying a mutual fund provides instant holdings in different industries and companies, depending on the fund's objectives. Investing across a broad range of securities and asset classes provides a level of stability to your investment.
Liquidity Like individual stocks, a mutual fund can be converted into cash upon your request.
Choice Due to the large size of mutual fund portfolios, portfolio managers have access to securities not otherwise available to individual investors. And with thousands of mutual funds to choose from in Canada, there's a fund out there to fit your every investment need.

What types of funds are available?

Money Market Funds Money market funds invest in short-term (less than one year to maturity) corporate and government debt securities such as treasury bills, banker's acceptances and corporate notes. Some money market funds specialize in Canadian or US money market instruments or invest only in treasury bills. These are generally low-risk funds offering current income and liquidity.
Fixed Income Funds Fixed income funds invest in debt securities like bonds, debentures and mortgages that pay regular interest, or corporate preferred shares that pay regular dividends. The goal, typically, is to provide investors a regular income stream with low risk. Fund values will fluctuate to some extent and are sensitive to prevailing interest rates.
Balanced Funds Balanced funds invest in a mixture of money market instruments, debt securities and equities with the objective of providing reasonable current income and growth of the investment over the long-term.
Equity Funds Equity funds invest primarily in common shares, or equities, of Canadian or foreign companies, but may hold other assets as well. The goal is typically long-term growth through capital appreciation of the assets held. Some growth funds focus on large 'blue-chip' companies, while others invest in smaller or riskier companies. Performance will be affected by the success or failure of specific investments and by the performance of the stock market in general.
Global and Foreign Funds Global and foreign funds may be fixed income, growth or balanced funds that invest in foreign securities. These funds can offer investors international diversification and exposure to foreign companies, but are subject to risks associated with investing in foreign countries and foreign currencies.