Mutual funds are one of the most popular investment options in Canada. They’re designed to help you build wealth over time—even if you’re just starting out or learning how investing works.
A mutual fund is a simple way to invest in a wide range of assets without having to choose them yourself. When you buy a mutual fund, your money is combined with money from other investors. That pool of money is managed by professionals who decide which stocks, bonds, or other investments to buy.
Instead of owning individual shares or bonds, you own units of the fund. Each unit represents a small portion of everything the fund holds. This makes it easier to diversify your investments and reduce risk.
Mutual funds are designed to be accessible. You don’t need a large amount of money to begin, and you don’t need to be an expert in finance. The fund manager handles the day-to-day decisions, so you can focus on your goals.
They also offer flexibility. Whether you're saving for retirement, a child’s education, or just trying to grow your savings, there’s likely a fund that fits your needs. You can choose from funds that focus on safety, growth, income, or a mix of all three.
Benefits include:
Professional management: Your money is handled by trained experts who monitor the market and make investment decisions for you.
Built-in diversification: Each fund includes a mix of investments, which helps reduce the risk of losing money if one investment performs poorly.
Low minimum investment: You can often start with a small amount, making it easier to begin investing even on a tight budget.
Wide range of fund types: From conservative to aggressive, there’s a fund to match your comfort level and financial goals.
There are many kinds of mutual funds, each with its own purpose and level of risk. Some funds invest in short-term government securities and are considered very safe. Others focus on stocks, which can offer higher returns but also come with more risk. Balanced funds combine stocks and bonds to offer a middle ground.
If you’re planning for retirement, you might consider a target-date fund. These funds automatically adjust their mix of investments as you get closer to your retirement date, gradually reducing risk over time.
Common types include:
Money market funds: These invest in short-term, low-risk assets like government treasury bills. They’re designed to protect your money while earning modest returns.
Bond funds: These focus on fixed-income investments like government or corporate bonds. They offer regular interest payments and moderate risk.
Equity (stock) funds: These invest in company shares and aim for long-term growth. They can offer higher returns but are more sensitive to market ups and downs.
Balanced funds: These combine stocks and bonds to balance growth and stability. They’re a good option if you want moderate risk and steady returns.
Target-date funds: These are designed for retirement savings. They automatically adjust their mix of investments as you get closer to your retirement date, reducing risk over time.
Mutual funds can make money in several ways. You might receive dividends from stocks, interest from bonds, or capital gains when the fund sells investments for more than it paid. Most funds reinvest these earnings to buy more units for you, helping your investment grow.
How your earnings are taxed depends on how you hold the fund. If it’s in a registered account like a TFSA or RRSP, you may benefit from tax advantages. If it’s in a regular account, you’ll likely pay tax on any earnings.
Learn more about Types of Investment Accounts
Every mutual fund charges fees, and it’s important to understand how they work. These fees cover the cost of managing the fund and other expenses. You don’t pay them directly—they’re taken out of the fund’s earnings, which means they reduce your returns.
Typical fees include:
Management fees: These pay the fund manager and are usually a percentage of your investment. They’re built into the fund’s operating costs.
Operating costs: These cover legal, accounting, and administrative services that keep the fund running smoothly.
Sales charges (loads): Some funds charge fees when you buy or sell units. These can be upfront (front-end load) or charged when you sell (back-end load).
Before you invest, ask for the fund’s “Fund Facts” document. It explains the fees, risks, and past performance in plain language.
Like all investments, mutual funds carry risk. The value of your fund can go up or down depending on the market. Some funds are more volatile than others, especially those that invest heavily in stocks. It’s important to understand what the fund invests in and how that aligns with your goals.
Always read the Fund Facts and talk to a registered financial advisor before making a decision. They can help you understand the risks and choose a fund that’s right for you.