Mutual Funds Versus Etfs
The mutual fund industry experienced its first major competition when exchange traded funds, or ETFs launched in Canada.
Vanguard, one of the most in-demand and lowest-cost ETFs companies entered the Canadian market in 2011, and since then sales of ETFs have outpaced those of mutual funds.
Traditional ETFs are passively managed and dont seek to beat the market instead they hold the same basket of securities as the index theyre following and use that index as a benchmark to measure their performance. Matching the benchmark performance is the goal. Most traditional ETFs charge between 0.06 to 0.25%, two percentage points lower than most mutual funds.
Read more: Other differences between mutual funds and ETFs are well explained here.
ETFs far fewer assets under management than mutual funds. Canadas ETF industry has about $170 billion AUM in 2019 compared to the $1.5 trillion stashed in mutual funds.
One reason is because mutual funds have been around for so much longer.
Steve Geist, president of CIBC Asset Management Inc told the National Post, why he thinks Canadians still invest so much in mutual funds despite the high cost and low relative performance:
The fact of the matter is that fear is driving the decisions of many investorsAs a result, they have stopped taking an objective look at their investment options.
Many of the most popular equity, dividend, and balanced mutual funds in Canada have identical top 10 holdings.
Article Contents6 min read
Identify Your Investment Goal
Before you start investing in mutual funds, you need to have a clear picture of what you hope to achieve with your investments. Are you pursuing a long-term goal such as retirement or a short-term one like buying a car?
What is your investment budget? Would you like to invest in low-risk, medium-risk, or high-risk funds? These are some of the questions whose answers can help you write out a detailed plan of what you want to achieve with your investments.
Why Invest In Mutual Funds
They are popular for many reasons, including:
DiversificationMutual funds give you an efficient way to diversity your portfolio without having to select individual stocks or bonds and they cover most major asset classes and sectors
Professional managementFund managers have extensive knowledge that helps them make investment decisions. A manager may adjust the portfolio mix based on changes in market conditions or a company’s performance to help the fund achieve its stated objective.
ConvenienceYou can buy or sell your fund shares on any business day, automatically reinvest the dividends and capital gains distributions and exchange funds within a fund family without fees.
TransparencyMutual funds are subject to industry regulation to ensure accountability and fairness. And you can see the underlying investments in each funds portfolio either online or via the funds prospectus.
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Investing In Mutual Funds
A lot of first-time investors do not invest in mutual funds because they find the investing process too complicated. These articles help mutual fund beginners to get started with investing.
- What is KYC and why is it required for investing in Mutual Funds
- Investing through Best Systematic Investment Plan
Why Should You Invest In A Mutual Fund
You should consider investing in a mutual fund if the funds objective matches your investment needs. A fund that invests primarily in stocks isnt going to be suitable if you think youll need the money one year from now, while a bond fund likely wont be the best option if youre looking for a fund to help meet long-term retirement goals in the distant future.
Make sure to read a funds prospectus before investing to understand how your money will be invested and whether it makes sense for your own financial goals.
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Best Large Market Cap Mutual Funds
Large-cap mutual funds invest in huge, profitable companies. These companies have an excellent track record and are established in their field. But because theyre already so established their future growth potential is limited. These mutual funds are medium- to high-risk because no matter how big a company is it can still fail. Strong large-cap companies can also provide significant income since many pay dividends Which fund is right for you depends on how much exposure youd like outside of Canada. For true diversification and greater growth potential its prudent to invest additionally in the United States, and perhaps in Europe or Asia. Thats because most large-cap Canadian companies are concentrated in only three industries: oil, utilities, and financial services. To get exposure to high-quality consumer goods or technology companies youll probably have to look outside the country.
Building A Portfolio Of Mutual Funds
The right way of investing is to build a mutual fund portfolio. A portfolio is a collection of mutual funds that helps you meet your investment goals. Your overall returns matter on your overall portfolio and not a particular fund. In this section, we learn about the basics of building a mutual fund portfolio.
- What is Portfolio Investing
- When to Sell a Mutual Fund
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Are Etfs A Better Choice
You may have heard about exchange-traded funds , or read about them online, especially comparing them to traditional mutual funds. ETFs do have a number of benefits however, as with all investments, there are some drawbacks you need to know about before you make the switch.
International limitations, short-term investment focus, and tax implications are some considerations for an investor weighing mutual funds against ETFs.
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This article is provided for informational purposes only. It does not cover every aspect of the topic it addresses. The content is not intended to be investment advice, tax, legal or any other kind of professional advice. Before taking any action based on this information you should consult a professional. This will ensure that your individual circumstances have been considered properly and that action is taken on the latest available information. We do not endorse any third parties referenced within the article. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only.
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How Can I Invest In Mutual Funds
There are multiple ways in which you can invest in mutual funds. You can invest directly from the website of the fund house or through investing apps like ETMONEY, which offer direct funds and charges no commission. Direct mutual funds offer higher returns than regular plans as they don’t charge any distribution commission. If you invest directly through AMC’s website, it will be difficult to manage your portfolio as you will have to track your investments on different websites. While if you invest through ETMONEY, you can see all your holdings in one place. This will make managing your portfolio much easier.
- Top Searched Schemes:
Mutual fund investments are subject to market risks. Read all scheme related documents carefully.
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Stocks Of Federal Bank Tata Power Andhra Bank Lupin Etc In News
The stocks of Federal Bank are buzzing as it has decided to enter into a partnership with Ripple Inc., for cross border remittance via its network. Ripple Inc. is a firm that supports blockchain global remittance. In the meantime, Andhra Bank has issued 1,14,56,72,061 shares to the government of India at Rs.28.42 per equity share on a preferential allotment basis. Tata Power signed the PPA with Brihanmumbai Electric Supply and Transport Undertaking for 5 years for 676.69 MW of power supplied from its Trombay Thermal and Hydro Plants. In other news, Lupin, a pharmaceutical company launches Fluocinonide Ointment USP in the US. The drug is supposed to relieve inflammatory and pruritic manifestations. In another news, Tata Steel acquired 27,97,000 shares on a preferential basis which aggregates to Rs.1,79,56,74,000 and 34,92,500 of convertible warrants. With this, the holding of Tata Steel in the firm increased to 55.06% from 50.09%. The stocks of Trent also found place in news due to a resolution passed by the board to raise funds by issuing commercial papers worth around Rs.100 crore.
29 March 2019
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What Are Mutual Funds
Mutual funds are investment vehicles that allow groups of investors to combine their financial resources to purchase large portfolios of stocks, bonds and other securities. Theyre a good investment option for the average investor since a single share of a mutual fund gives you exposure to hundreds of stocks or bonds. This diversifies your investment dollars and reduces the risk that any one company will cause your investment to lose value.
Sophia Imiekas Simple Definition Of What Mutual Funds Are
Sofia highlighted the fact that Nigerians are very communal and often share things with one another.
Whether its the time when a big meal is prepared and everyone in the family eats together or when students soak Garri so it can swell enough for each person to have a considerable amount.
She asked, have you ever had a feast in school where everyone contributes their share of food? The food is then distributed for everyone to eat as a group. If you can relate to this, then you have an idea of what mutual funds are.
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What Is An Etf
Like mutual funds, ETFs invest in a basket of securities such as stocks, fixed income or commodities. But, unlike mutual funds, ETFs are bought and sold on a stock exchange. This means their pricing changes throughout the day.
In contrast, mutual fund prices are determined daily after the close of the stock market. Additionally, mutual fund purchases and sales are processed by the fund company.
Why Are Funds Preferred For Retirement Savings
While its possible to build a diversified portfolio purchasing individual company stocks or bonds, most investors dont have the time, experience or cash to build a broad portfolio on their own. Purchasing shares in funds can be a cost-effective way to invest with instant diversification.
“If you build your own portfolio, you could be overweighted in certain industries, certain themes, certain investing styles,” Lee says. “Mutual funds are a great way to easily diversify and spread risk around.”
“The first thing to note is that when say ‘funds,’ there are usually two kinds were referring to: mutual funds and exchange-traded funds,” says Scott Schleicher, senior financial advisor at Personal Capital, an online financial planning company.
These funds come in many varieties, but in general mutual funds can be actively managed attempting to beat average market returns or follow an index such as the S& P 500, in which case the fund will rise and fall in value as the index does. Funds that track an index are known as index funds. A close cousin of index funds are ETFs.
“ETFs mostly follow an index, are usually cheaper, more tax-efficient, and as the name implies, can be traded throughout the day like a stock on an exchange,” Schleicher says.
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Don’t Chase Past Performance
While it may seem like a good idea to only buy shares of mutual funds that have good past performance, it is not safe to assume this. Mutual funds are a unique type of investment.
For example, portfolio managers change even though the fund name remains the same. If someone new is managing your money, you may not realize it.
Likewise, fund assets grow, making it more difficult to put money to work as the universe of potential investments shrinks.
How To Invest In Mutual Funds In Detail
Before you decide to invest in a mutual fund, it is important to keep the below points in mind. Doing so will help you choose the right kind of funds to invest in, and help you accumulate wealth over time.
This is the first step towards investing in a mutual fund. You need to define your investment goals which can be – buying a house, childâs education, wedding, retirement, etc. If you do not have a specific goal, you should at least have a clarity on how much wealth you wish to accumulate and in how much time. Identifying an investment objective helps the investor zero in on the investment options based on level of risk, payment method, lock-in period, etc.
In order to invest in a mutual fund, investors need to comply with the KYC guidelines. For this, the investor needs to submit copies of Permanent Account Number card, Proof of Residence, age proof, etc. as specified by the fund house.
Remember that investing in mutual funds comes with a set of risks. Schemes that offer high returns is often accompanied with high risks. If you have a high appetite for risk and wish to accomplish high returns, you can invest in equity schemes. On the other hand, if you do not want to risk your investment and are okay with moderate returns, you can go for debt schemes.
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How To Choose A Mutual Fund
Choosing which fund to invest in can be intimidating when you look at all the different options. The first thing to consider is whether a funds investment objectives are aligned with your long-term financial plan. For beginning investors who are early in their careers, investing in a low-cost S& P 500 index fund is likely to be an attractive option.
For more experienced investors or for people looking to invest in an actively-managed fund, more research may be required. Youll want to understand a funds overall approach and investing philosophy and who the portfolio managers are that will be making investment decisions on your behalf. Ultimately, a funds performance is what will matter to you as an investor, so try to understand the drivers of a funds long-term performance and whether that is likely to continue in the future.
Youll also want to consider the fees associated with purchasing shares in a fund. Remember that if two funds have the same investment performance, the one with the lower fees will leave their investors better off.
Consider Your Exit Strategy
Eventually, youll want to sell your mutual fund shares to pay for your financial goals, such as making withdrawals during retirement.
If you bought mutual funds with backend loads, youll have to pay a fee to your broker when you cash out. Youll also probably owe taxes on any capital gains your investments made unless you held them in a Roth IRA or Roth 401. Consider speaking with a financial advisor or tax professional to determine strategies to minimize the taxes you may owe on your investments.
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Popular Mutual Funds In Canada
Here’s a look at the most popular mutual funds in Canada. We’ve stack ranked the most popular mutual funds based on how much money is invested in each one . All of these funds are domiciled in Canada and the amounts are in Canadian Dollars. The table shows snapshots of their performance and MER as of May 2020.
Performance changes by the day and sometimes fees change too. You’ll be well-served doing some further research about each of these funds before investing as much as a dollar.
It’s More Than Just How Much Risk You Can Handle
Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact.
Stocks and mutual funds offer several benefits for investors. When you buy a stock, you own a share of the corporation. You can make money when stockholders receive dividend payments and when you sell the stock. That provides a steady stream of taxable income throughout the time that you own the stock. When you buy a mutual fund, you are pooling your money with other investors to buy stocks and other securities.
Determining which fits best with your investment style largely depends on four factors: risk, reward, timeframe, and expenses.
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How Do Mutual Funds Make You Money
Mutual funds make money by investing in securities on your behalf. The fund can only do as well as the underlying securities it holds. Income and appreciation are generally the two ways you can make money in securities.
Income comes in the form of interest or dividend payments that are then passed on to you as a fund investor. Appreciation can be reflected in the net asset value per share of the fund or distributed to investors in the form of capital gains, minus any losses.