Mutual Fund Basics

The portfolio of the mutual fund is an investment pool of investment decisions of the fund manager are made that are held in trust on behalf of individual investors. Each fund has a defined investment objective, which determines the overall management of the Fund, and the types of investments that can be kept in it. If you invest in a mutual fund, you buy shares of the Fund, each unit represents a share of the fund value.

How Do Mutual Funds Work?

Types of Mutual Funds

A diverse array of mutual funds is available to investors, including money market, fixed income, balanced and equity funds.

Mutual funds also vary in the amount of returns generated and their degree of risk. The chart below shows money market funds are the least risky and generally have the lowest returns. While equity funds are usually the most risky but tend to have the highest potential returns.

Return Vs Risk

Your advisor can help you build your portfolio, ensuring the funds you choose fit your investor profile, risk tolerance and investment objectives.

Money Market Funds

These types of funds invest primarily in treasury bills and other high quality, low risk short-term investments. Offering stability and minimal risk, money market funds deliver returns in the form of regular monthly distributions that are typically better than those of a traditional bank account. Investors looking to meet short-term goals or access funds in case of emergency often choose money market funds as an investment solution.

Fixed Income Funds

By investing in fixed income securities such as mortgages, bonds and preferred shares, fixed income funds offer regular cash flow while preserving capital. These funds typically distribute interest income and provide potential for capital gains. Fixed income funds may also be used as a way to diversify an investment portfolio.

Balanced Funds and Portfolio Solutions

Balanced funds hold a combination of equities, fixed income and money market investments. The portfolio manager adjusts the asset mix based on the objective of the fund and their view of the economy. Investors receive distributions in the form of interest, dividends and capital gains.

Equity Funds

Equity funds invest in the stocks of public companies. These companies range in size from large to small, or both, and can be located in Canada only, the United States only, other specific countries or all countries. Equity funds may also focus on companies in certain sectors such as energy, gold or financials. These funds are ideal for investors looking for potential growth over the long term.

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