Mutual funds are a popular investment vehicle because their diverse nature lends to a more balanced financial portfolio. Investment companies sell shares of the fund and invest the proceeds in a variety of assets under the direction of a professional money manager.
Where to Buy Mutual Funds
Advisers must be registered to sell mutual funds in their state, province or territory. Licensing requirements include the successful completion of a training course and the examination required by the province's regulatory agency.
Mutual funds may be purchased from registered advisers at:
- Banks/trust companies
- Brokerage firms
- Credit unions/caisses populaires
- Life insurance brokers and agents
- Mutual fund companies
- Mutual fund dealers
Mutual fund and life insurance companies typically sell only their own funds, while banks and dealers offer a variety of different products.
How to Buy Mutual Funds
There are several important steps to buying mutual funds. First, work with an adviser to create a financial plan and determine how much can be invested in mutual funds. Investigate several mutual fund options that fall within the amount available for investment. Consider:
- the amount required to buy into the fund
- the desired length of time to invest
- associated fees (see below)
- current and past fund performance, rather than future projections
- the types of investments held within the fund: stocks, bonds, etc., and the level of risk involved.
Discuss the pros and cons of holding the mutual fund within a sheltered plan such as an RRSP or IRA. After completing the application form, keep a photocopy for future reference. Watch the mail for a prospectus, which provides information about the company managing the fund. Read and save all mutual fund statements, asking for clarification when required.
Buying Mutual Funds: No Load Funds vs. Front Load or Back End
The fees associated with mutual fund investment are a source of confusion for many new investors. Some mutual funds require an upfront payment to buy into the fund, although this has become increasingly unpopular.
Many companies now use a back end load fee, or contingent deferred sales load (CDSL) fee; when the investor needs to sell the fund, a penalty applies based on the length of ownership. For more information on mutual fund fees, see the article Understand Fees Before Buying Mutual Funds.
Others still offer no load funds. Do not confuse no load funds with no fees; all mutual funds include a fee called the Management Expense Ratio (MER) to cover administrative costs, the mutual fund manager's salary, legal fees, and other incidental expenses. See no load mutual funds explained in How No Load Funds Work.
 |
 |
 |
 |
 |
