Are Mutual Funds for Me?

To be a successful investor you do not need a great deal of money, years of experience, subscriptions to the best investing newsletters and the time to read them. All you need is a good Financial Advisor working with Professional Mutual Fund Managers.

Mutual funds¹ are composed of investors just like you who have mutually decided to pool their money and hire a professional investment manager. You do not even have to round up all your friends and convince them to invest with you. Existing mutual funds are offered by investment companies, banks, trust companies, credit unions, insurance companies and professional organizations.

The key advantages offered by mutual funds are professional management and investment diversification. By not centralizing all your funds in one specific investment, you reduce your risks while increasing the possibility of gains. Because mutual funds are generally regarded as long-term investments, you do not have to (and should not) worry about them daily.

Mutual funds have differing objectives. Some may concentrate on speculative growth investments, others on preservation of capital and a steady income. The key is to know your own objectives and find a mutual fund which shares them. Mutual fund portfolios may include common stocks, preferred shares, bonds, treasury bills, precious metals and real estate in any combination.

Day-to-day investment decisions for the mutual fund are made by the Fund Manager.

Open and Closed Mutual Funds

Most mutual funds are open-ended, which means there is an unlimited number of units offered and investors are able to contribute and withdraw money whenever they choose. The amount contributed is divided by the current unit value to determine how many units are purchased. The amount withdrawn is divided by the current unit value to determine how many units are to be redeemed. With open funds, you have the additional option of reinvesting proceeds from the fund, such as dividends, or receiving the proceeds outside the fund.

Some funds are closed-ended, which means that the number of units for sale is fixed. Closed funds are usually traded on an open stock exchange for less than their underlying value and you can not buy or sell units unless there is another willing seller or buyer.

How Do I Know How My Mutual Fund is Doing?

The total value of the fund is called the Net Asset Value (NAV). This is calculated by taking all of the fund's investments at market value and subtracting management fees. Dividing the NAV by the number of units sold determines the Net Asset Value Per Share (NAVPS).

The NAVPS is calculated on a daily or weekly basis (except for real estate funds which are calculated monthly) and printed in mutual fund tables of publications such as The Financial Post or the Report on Business section of The Globe and Mail.

You will also receive quarterly and annual reports on the performance of the fund and, if you choose to automatically reinvest proceeds, notices of the additional shares purchased.

What Are the Costs Associated with Mutual Funds?

There are varying costs for mutual fund professional management. There may be commissions on the purchase of units, which are payable either to a broker, a Financial Advisor or directly to the fund management company as "front-end load" fees. Front-end load fees are typically negotiable to some extent. There may also be redemption fees for withdrawals, known as "back-end load" fees, calculated based on your original investment or on the market value. Back-end load fees usually decline the longer you keep your money in the fund.

There are also on-going management fees charged by the Fund Manager for maintenance such as research, buying and selling investments for the fund and issuing reports. These typically range from 1% to 3% of the fund's total assets for the year.

However, fees do not always reflect the performance of the fund. Since mutual funds are generally regarded as long-term investments, annual management fees are usually more important than load fees.

So, Are Mutual Funds for Me?

Professional management, diversification and long-term gains are the benefits offered by mutual funds. Your Financial Advisor can advise you on which mutual funds are best for you and your investment goals.

¹Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.