Mutual funds

What is a mutual fund?

Simply put, a mutual fund invests in a group of stocks, bonds, or other investments selected by a professional fund manager. The team managing a fund: 

• has experience selecting investments, and
• manages buy-and-sell decisions so you don't have to.

How do mutual funds work?

When you buy units of a mutual fund, you're pooling your money with other investors. If you're a small investor, this lets you have a much wider mix of investments than you could on your own.

Why invest in mutual funds?

Mutual funds are simple to buy and often have a low minimum investment. They can give you an easy way to diversify your portfolio. That means including variety – a mixture – in your collection of investments.

What is a diversified portfolio, and why is it important?

A diversified portfolio includes various types of investments, like stocks, bonds and cash. Investments may react differently to the same economic event, for example, higher inflation.

Over time, some investments will increase in value, while others will decrease. So, having a mix of investments can help you minimize risk and potentially achieve better results.

What are the main types of mutual funds?

The three main types of mutual funds are:

1. equity funds, that invest primarily in a variety of different kinds of stocks;
2. fixed income funds, that invest primarily in bonds; and
3. balanced funds, that invest in a mix of stocks, bonds and similar investments.

There are many different categories of mutual funds to choose. Some invest in certain industries, others in certain countries, while still others invest more widely.

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Mutual funds charge management fees and expenses that cover professional investment management and administration. These fees apply regardless of short-term market performance.

No. You may not need a large amount of money to get started. Some Sun Life mutual funds require as little as $500 as an initial investment. A Sun Life advisor can help you find options that fit your situation.

Unlike a product such as a guaranteed investment certificate, the returns on mutual funds are not guaranteed. Past performance is no guarantee of future performance, and the value of a fund can change over time.

Mutual funds typically make distributions to investors. A dividend is a payment (in cash or assets) from a corporation, whereas a distribution is a cash payment from a mutual fund.

However, from a tax perspective, mutual fund distributions can be in the form of interest (like dividends or capital gains). The type and frequency of distributions differ among each fund.

Since mutual funds are managed by portfolio managers, they may be worth considering for investors who don’t want to manage their investments on their own. They’re also great for investors who want to reduce risk by diversifying their portfolio.

Yes. Any income that a non-registered mutual fund earns is distributed out to the fund owner and taxed in the owner’s hands as if the owner had personally owned the investments that had produced the income. In addition, owners may be subject to tax on any capital gains generated on unit sales.

Registered funds (like RRSPs, Registered Retirement Income Funds (RRIFs), or RESPs,) receive the same tax treatment accorded to their registration type.

Generally, any type of income generated from a mutual fund registered as a TFSA (such as interest, dividends, foreign income and realized capital gains) is tax-free.