What sets mutual funds apart from other types of investments?

With more than 2,800 different mutual funds available in Canada today, there is a solution designed to match every investor's need. 

EASY ENTRY

  • Ability to start investing with a small amount of money (a single investor can purchase units of a fund for as little as $50).
  • Allows investors to set up regular contributions.
  • Provides daily liquidity.

EFFICIENCY

  • Allows individuals, including those with smaller amounts of savings, to combine their money into a single pool that can be efficiently invested.
  • Provides instant diversification, based on the chosen mutual fund.
  • Having multiple investors investing in a mutual fund enables those investors to collectively achieve the capital scale required to purchase a diversified portfolio of securities.

ACCESS

  • Affordable access to professional investment management, which would otherwise be quite difficult (if not impossible) to create with a small amount of capital. 
  • Simple access to a wide array of investment vehicles, such as foreign and domestic stocks and bonds.
  • Can be purchased directly, or under the guidance of an investment adviser. The financial advice channel is the predominant sales channel in Canada, with many independent and bank- and insurance-owned distribution networks servicing investors.

SAFEGUARDS

  • Process is highly regulated to ensure that the money is invested in a prudent manner and provide various best practices and investor protection features.

Types of mutual funds

FIXED INCOME FUNDS

Generally made up of: government bonds, investment-grade corporate bonds and high-yield corporate bonds. 

The risks and returns associated with fixed income funds vary depending on the average time to maturity (longer-term maturities will fluctuate more in price as current interest rates change) and credit rating (corporate bond funds generally pay higher returns and are riskier than those made up of government bonds) of the assets within the fund.

Interest and any capital gains earned on these investments are paid out to investors in cash or in the form of more fund units, or both.

MONEY MARKET FUNDS

Generally made up of: short-term fixed income securities such as government bonds, treasury bills, bankers’ acceptances, commercial paper and certificates of deposit.

Money market funds are a low-risk place to park your money while you decide where to invest or until you need it for life expenses like the down payment on a home. 

Unlike bank and credit union savings accounts, money market fund units are not guaranteed. Their lower risk stems from owning lower-volatility assets.

EQUITY FUNDS

Generally made up of: Stocks. 

Equity funds aim to capture and distribute economic growth by owning shares of companies. Compared to money market and fixed income funds, there is a greater potential for higher returns along with a higher risk you might lose money, especially if you cash out during times of high volatility. 

There are many types of equity funds along a risk-reward continuum, from higher-risk small-cap growth stocks to lower-risk large-cap dividend stocks. 

INDEX FUNDS

Generally made up of: Assets meant to replicate the performance of a specific index.

Index funds use different strategies to replicate – as much as possible – the performance of a market index (a theoretical basket of holdings designed to represent the value of all the holdings in that market). 

The risks and returns of the fund depend on the performance of the index, as well as the accuracy of replication. Index funds usually have lower costs because research and trading costs are minimized. 

TARGET DATE FUNDS

Also called target-based or life-cycle funds, target date funds are designed to align with the investor’s investment horizon, maturing on a target date such as the investor’s retirement. The fund’s asset allocation mix is adjusted over time, allowing a higher-risk growth strategy in the early years and reduced risk as the target date approaches.

SPECIALTY FUNDS

Generally made up of: Assets representing a specific sector, such as resources, real estate or socially responsible companies.

Many investors want to invest more heavily in particular sectors, and specialty funds are designed to fulfill that goal. 

BALANCED FUNDS

Generally made up of: Stocks and bonds. 

A one-stop, balanced solution for investors who want to keep it simple, most balanced funds use a set formula such as 60 per cent equity, 40 per cent fixed income.