Understanding mutual funds

Mutual funds are the most common type of investment fund. In Canada, there are about 3,300 mutual funds designed for small, medium and large investors.

You can choose which funds to invest in based on the stated objective and strategy of each fund, as well as its risk profile and its performance and fees.

Investors don’t make decisions about which securities the mutual fund purchases. The fund manager’s job is to ensure that the fund’s investment strategy is implemented effectively. This is called portfolio management and involves deciding which securities (stocks, bonds and money market instruments) to purchase and in what quantities, and when to buy and sell the securities. The people who are trained to do this are called portfolio managers. They must be well educated and have a high level of professional qualifications and experience.

The portfolio manager’s goal is to produce capital gains and income for the mutual fund’s investors. Any investment carries some level of risk, and part of the portfolio manager’s role is to take into account and manage that risk. The portfolio manager’s decisions are based on the stated objective and strategy of the fund. The investment strategy can range from rapid growth, which carries some risks, to a safety strategy where the focus is on protecting the investment.

Canada’s mutual funds industry is highly innovative – providing a wide array of choices to meet investors’ varied needs. Access to mutual funds is easy and convenient and they are designed by highly trained investment professionals who strive to protect investor interests.

Mutual funds are highly regulated and more transparent than many other managed investment products.