When you buy a mutual fund, you pool your money with that of other investors. You invest money in a mutual fund by purchasing units or shares of the fund. New units or shares of the fund are issued as investors are added to the fund.
A mutual fund’s investments are managed by a portfolio manager. He manages the fund on a daily basis and decides when to buy and sell investments based on the fund’s investment objectives.
The level of risk and return
depends on the type of investment in which the fund invests. Mutual funds are not guaranteed or insured by the Canada Deposit Insurance Corporation or any other government agency even if purchased from a bank whose name the fund is named. You can lose money if you invest in a mutual fund.
Past performance – You cannot predict the performance of a fund based on its past performance. However, a fund’s past performance can help you determine how volatile or risky its performance will be.
of the fund and the acquisition costs. Mutual funds are redeemable; you can sell them at the current net asset value less redemption fees
Net asset value
When you purchase or redeem securities of a mutual fund, you pay or receive what is called the net asset value of those securities at the time of the purchase, transfer or redemption. Most mutual funds report net asset values daily in the business section of many newspapers or on the fund manager’s website. Net asset value is the difference between assets and liabilities
, capital gains, or other income generated by the fund through its investments. You can receive these distributions in cash or have them reinvested in the fund for you. If you do not request that distributions be paid to you in cash, they will usually be reinvested in the fund for you.
Fees and costs reduce the return you get on the money you invested. You must pay some of these fees yourself, while others are paid by the fund. Make sure you understand what the fees and costs are before purchasing a mutual fund.
Taxation of mutual funds
unregistered, all gains made are taxable. Distributions are taxable in the year you receive them, whether you receive them in cash or have them reinvested for you. Interest, dividends and capital gains are treated differently for tax purposes
which will have an impact on investment performance.
If you keep your mutual fund in a registered plan, such as a registered retirement savings plan , a registered retirement income fund or a registered education savings plan , you will not pay tax on the gains made, as long as the money remains in the plan. When you withdraw money from the plan, that mony is considered taxable income
With a tax-free savings account , you don’t have to pay tax on any gains you make, regardless of whether your money stays in the account or you withdraw it from the account.
mutual fund companies that sell directly to individuals.
Most mutual funds are sold by financial advisors who must be registered with their provincial regulator (for example, the Ontario Securities Commission ). Financial advisors must also work for a company that is licensed to sell funds. You can also buy mutual funds without going through a financial advisor if you deal with a low-commission brokerage firm.
