Mutual Fund

A mutual fund pools money from many investors and uses it to buy a collection of stocks, bonds, or other assets. A professional fund manager decides what to buy and sell inside the fund. When you invest in a mutual fund, you own a small piece of that entire collection.

In Canada, mutual funds have traditionally been the most common way people invest, especially through bank advisors. You might recognize names like RBC Select, TD Comfort, or Tangerine Investment Funds.

How they differ from ETFs

Mutual funds and ETFs are similar in concept. Both give you a diversified basket of investments in a single purchase. The main differences are in how they’re bought, sold, and priced.

Mutual funds are bought and sold once per day at the end-of-day price. ETFs trade on the stock exchange throughout the day, like individual stocks. Mutual funds are often purchased through a bank advisor, while ETFs are typically bought through an online brokerage.

The fee question

Many Canadian mutual funds sold through banks charge between 1.5% and 2.5% per year (the MER), which is high by global standards. But not all mutual funds are expensive. Low-cost index mutual funds like the TD e-Series (around 0.25% to 0.50%) and Tangerine’s index funds (around 0.65%) exist and are perfectly reasonable options.

The blanket statement that “all mutual funds are bad” is as misleading as “all ETFs are safe.” There are 3x leveraged ETFs that carry far more risk than a plain index mutual fund. What matters is what’s inside the fund, what it costs, and whether it fits your plan. The wrapper, whether it’s called an ETF or a mutual fund, is just packaging. Our ETFs vs. mutual funds guide compares the two side by side.

A concrete example

You invest $20,000 in a bank mutual fund with a 2.2% MER. That’s $440 in fees the first year. The same $20,000 in a TD e-Series index mutual fund at 0.28% costs you $56 per year. Both are mutual funds, but you’re paying almost 8 times more for one than the other.