Why invest in mutual funds?

When you buy a mutual fund, you are pooling your money with other investors, allowing you access many investments at a relatively low cost. A portfolio manager makes the buying and selling decisions within the mutual fund on your behalf. Mutual funds are liquid meaning that you can buy and sell at any time. Mutual funds can be purchased through banks, financial planning firms, brokerage firms, credit unions, trust companies and other investment firms.

What are the costs?

Mutual fund costs can vary widely from fund to fund. You can find information about a mutual fund’s costs in the prospectus and/or the fund facts sheet. Generally, the main cost categories are Management Expense Ratio and Sales Charges.

What is Management Expense Ratio (MER)?

A management expense ratio (MER) is made up of management fees, operating fees and taxes charged to a fund during a given year expressed as an annual percentage of the fund’s total assets. Management fees include the fees paid to the manager for professionally managing the fund. They may also include the trailing commission paid to an advisor and their firm for ongoing advice and service. Operating fees include the fund’s day-to-day operating expenses. Each fund is also required to pay taxes on management fees and administration fees charged to the fund.

What are trailing commissions?

As mentioned above, management fees may also include trailing commissions. The manager pays portion of its management fee to the advisor and their firm that you deal with as a trailing commission for the ongoing advice and services they provide to you. It is an annual service commission that is set by the fund and usually ranges between 0.25% to 1%. It is paid to your advisor and their firm as long as you own the fund.

How are mutual funds purchased and compensated?

When investing in mutual funds, it is important to understand how advisors and investment firms are compensated. Any sales charges are separate from the Management Expense Ratio (MER) and Trading Expense Ratio (TER) and should not be confused with any trailing commissions that may be included in a fund’s management fee.

Mutual funds are generally purchased under either a sales charge structure or a fee-based advisory arrangement.

1. Front-end load (FEL) or initial sales charge (ISC). This is a negotiable sales charge, generally ranging from 0% to 5%, that is deducted from your investment and paid to your advisor and their firm at the time of purchase.

2. No-load. These funds do not charge a sales fee when you buy or sell units. Advisors may be compensated through trailing commissions that are included in the fund’s management fee or through a separate fee arrangement.

Like all funds, you should compare the MER, investment objectives, risk level, and performance history before making an investment decision.

Fee-Based Accounts

If you have a fee-based account, there is no sales charge when you buy or sell funds, and no trailing commissions are paid to your advisor or their firm. Instead, you pay an annual fee, usually charged monthly, to your financial advisor and their firm. This fee is often based on a percentage of the total assets your advisor manages on your behalf and may be negotiable.

You may be charged other fees in addition to the sales charges and MER discussed above. Please always read the Fund Facts document prior to investing.