How to Invest in Canadian Mutual Funds
As an investment instrument, Canadian mutual funds
are no less lucrative and high-yielding than gold
and silver stocks
, so you might consider investing some of your savings in them.
How Canadian mutual funds work?
Just like the mutual funds in the United States and in other developed economies, a Canadian fund operates as an investment pool – it pools the money of its investors
under the supervision of the funds manager, whose decision is to select the investment instruments that the fund will use - stocks
, capital or other types of securities. It follows that mutual funds are the best option for investors who have little or no experience in dealing with capital markets. Their only job is to entrust their money to the funds management and with it – the responsibility for the investment itself. Be it because there are many inexperienced investors in Canada
or because Canadians are mostly busy making money and have little time to think where to invest it, mutual funds mushroomed across the country over the past two decades or so.
How to invest in a mutual fund?
Having selected the mutual fund with investment options that best meet your investment vision and risk tolerance, you have to decide how much you wish to put in the mutual fund. The simple logic is that the more money you place in the pool, the higher the yield will be. However, keep in mind that it is a common practice for a mutual fund to temporarily suspend the payment of dividends to its members, especially if the situation on the market takes a bad turn. This being done, you should select your type of mutual fund. Depending on their investment strategy, mutual funds in Canada fall in the following categories – growth-oriented mutual funds, income-oriented mutual funds, growth-and-income funds, internationally operating mutual funds and index funds. If you find it difficult to choose a mutual fund from the abovementioned categories, you may ask a financial advisor to compare different funds for you.
Once you’ve made up your mind as to your type of mutual fund, you should contact the fund and kindly request more information about its activities and, more important, about its financial performance over the past few years. You do not want to bet on a limping horse, do you?
One last thing you should know about mutual funds is that there are load funds, which charge commissions for managing your capital, and no load funds that do not do that. With load funds, the fund investor is responsible for paying the load which will serve to compensate the intermediary (e.g. financial planner, broker
, or investment advisor) for the expertise and time in selecting the most appropriate fund for the investors. A no-load fund sells shares without a sales charge or commission because shares are directly distributed by the investment entity rather than via a third party. A fund with a level load limited to 0.25 percent (against the maximum of 1 percent) is referred to as a no-load fund.