We’re all about saving money, which is why we continue to beat the drum about investing in low-fee exchange-traded funds (ETFs) through online discount brokers and robo-advisors.
As of December 2024, mutual funds remain a cornerstone of Canadian investment portfolios, with assets reaching $2.24 trillion. Mind you, thanks to new-to-the-market young investors, exchange-traded funds (ETFs) have also seen significant growth, totalling $517.6 billion in assets1.
Can mutual funds still be a profitable part of your portfolio? Why invest in mutual funds?
Yes, mutual funds can still be a smart investment choice, depending on your financial goals and strategy. Here’s why:
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- No cost to buy or sell – Unlike stocks and ETFs, many mutual funds don’t charge trading fees, making them cost-effective for frequent investors.
- Ideal for small, regular investments – You can set up automated monthly contributions, ensuring consistent investing without needing large upfront capital.
- Built-in diversification – Instead of picking individual stocks or bonds, you invest in a basket of assets, spreading risk across various sectors and markets.
- Simplifies investing – Mutual funds are managed by professionals, eliminating the need for constant monitoring and decision-making.
- Less volatility than individual stocks – Since mutual funds hold multiple investments, poor performance in one area may be offset by gains in another, helping to smooth out market fluctuations.
- Good for long-term investors – If you plan to invest for the long haul, mutual funds can provide steady growth with reinvested dividends and capital appreciation.
- Accessible through banks and online brokerages – Easy to buy and manage through financial institutions, with many options tailored to different risk levels.
While ETFs and index funds have grown in popularity, mutual funds remain a valuable tool for investors who prefer professional management and structured investment plans.
How to invest in mutual funds in Canada
If you’re gung-ho about investing in mutual funds, here’s how to do it like a boss.
Start with a risk tolerance assessment to determine how comfortable you are with risk.
You can take our risk tolerance quiz on our investing homepage.
Would you rather have the potential for higher returns, even if there’s an equal chance of losing money in the short term? If so, you’d want to focus on mutual funds made up of growth stocks.
On the other hand, if you’d rather opt for smaller returns and less volatility in your investments, you’d look toward mutual funds that are designed to be more conservative. Balanced funds, as the name implies, hold a combination of aggressive and conservative investments.
- Equity mutual funds: Gives you exposure to stocks. Depending on the mandate of the fund, you can invest in global stocks, country-specific stocks, or drill down into sector-specific stocks (i.e. renewable energy stocks or oil stocks). Equity mutual funds come with the highest risk-to-reward trade-off.
- Bond mutual funds – Gives you fixed-income exposure through federal government bonds, provincial government bonds, municipal bonds, and corporate bonds. Bond funds are less risky than equity funds but also come with lower expected returns.
- Balanced mutual funds: A combination of equities (stocks) and bonds to give investors an optimal asset mix with just a single fund. The classic balanced fund holds 60% stocks and 40% bonds. A balanced fund offers middle-of-the-road risk and returns.
- Money market mutual funds: The safest and most liquid fund type. That’s because they primarily hold cash and cash-like products such as 30 and 60-day T-bills. Money market funds are for investors who need a safe place to park cash for the short term.
Once you know how risky you want to get with your investments, compare the particulars of funds that match your risk tolerance. It’s easy: just look up their fact sheets online and study ‘em!
If you’ve never done this before, you can use Morningstar Canada (which we'll use in our example). It's one of the most comprehensive sources for mutual fund research including ratings, category rankings, fees and risk analysis. You can filter by fund type, performance, fees and sustainability and it offers historical performance data, expense ratios and portfolio breakdowns.
You can also use big bank brokerages like CIBC Investor's Edge or TD Direct Investing as well as BMO InvestorLine, Scotia iTrade and RBC Direct Investing.
Using Morningstar, you can search by fund name, ISIN or ticker. Or you can filter using various rating schemes.
Understanding Morningstar mutual fund ratings
Here are a few details to scrutinize during your mutual fund search:
| How to find the right mutual fund to invest in | Why it matters | 🔰 Beginner tip |
|---|---|---|
| Identify the type of investments in the fund |
The assets in a fund determine risk level, growth potential, and volatility.
Equity funds invest in stocks and have higher growth potential and can be more volatile. Bond funds offer stability but lower returns. Balanced offers a mix. Sector specific funds invest in industries like tech or healthcare. |
Look at the fund’s asset allocation. If you're new to investing and want stability, a balanced fund may be a good choice. If you’re comfortable with more risk for higher returns, equity funds might suit you. |
| Previous performance over the short and long term |
A fund’s historical performance helps assess consistency and reliability, but past performance doesn’t guarantee future results.
Short term performance shows how its reacting to market conditions whereas long term performance (5 to 10_ years) shows how well the fund weathers market cycles |
Look for consistent returns over at least 5 years. A fund that did well in both bull and bear markets may be more stable over time. Avoid picking a fund just because it had one great year. |
| The fund’s rating |
Ratings help compare funds within the same category.
For example, Morningstar Rating (1 to 5) is based on risk-adjusted past performance, Morningstar Medalist rating (gold, silver and bronze) aims to predict future success and Sustainability rating measures the fund's environmental, social and governance (ESG) risks. |
A 4- or 5-star rating suggests strong past performance, while a Gold or Silver Medalist rating indicates that analysts believe the fund will continue to perform well. However, always check fees and other factors before investing. |
| The fee structure |
High fees can erode your returns, even if the fund performs well.
Management expense ratio (MER): Covers fund operation costs (usually 1% to 3% per year). Lower MER funds keep more of your money invested. Front-end load fees: Charged when you buy the fund. Avoid if possible. Back-end load fees (Deferred Sales Charges - DSCs): Fees for selling the fund within a certain time frame (e.g., 7 years). These can be costly. No-load funds: Have no sales charges and are best for cost-conscious investors. |
Look for low-MER funds (under 1%), such as index funds, which track the market at a lower cost. The lower the fees, the more of your money stays invested and grows over time. |
There are two main types of fees that mutual funds charge: management expense ratio (MERs) and sales charges.
- MERs: This fee covers the fund’s operating costs, including compensation for the fund manager (the professional who selects and manages the investments in the fund). The MER also usually includes a trailing commission that’s paid to your investment firm/advisor. The MER is taken off the top of the fund’s earnings. So, for example, if a fund gained 8.5% last year and its MER is 2.5%, the reported return would be 6%.
- Sales charges: Also known as “loads,” these charges come in three varieties. With front-end loads, you pay a sales charge upfront to your investment firm/advisor when you purchase units in a mutual fund. With back-end loads (also called deferred sales charges, or DSCs), you only pay if you sell the fund within a certain time frame (usually seven years from the date of purchase). No-load funds charge no sales charges at all.
Our expert advice
Go for mutual fund fees that are lower. While you can’t guarantee an investment’s performance, you can guarantee its fee structure. And the research is clear: fees are the biggest predictor of successful investing.
By choosing funds with lower fees, you’ll hold on to more of your investment returns instead of lining the pockets of fund managers and advisors.
Often, these lower-fee funds are passive index funds (see the FAQ below for more information on index funds), but not always. Some smaller fund companies have actively managed funds with lower fees and decent performance.
Morningstar famously said that a mutual fund’s expense ratio is the most proven predictor of future fund returns2 – meaning the lower the fees, the higher the returns.
“That’s not to say investors should only consider cost when selecting a fund. There are many other variables, but investors should make expense ratios their first or second screen.”
Russel Kinnel, Morningstar
How to buy mutual funds in Canada
You can purchase mutual funds directly from the investment firms that own and operate the funds, or you can open an online brokerage account. Here's a few of Money.ca's top picks for buying mutual funds.
| Questrade | TD Direct Investing | Qtrade |
|---|---|---|
|
|
|
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✔️ No commission fees on mutual fund purchases
✔️ Low-cost D-series mutual funds available ✔️ User-friendly platform with solid research tools |
✔️ Huge selection of TD and third-party funds
✔️ Easy-to-use platform for beginners ✔️ Trusted bank with strong investor support |
✔️ Strong research tools for fund comparisons
✔️ Low-cost fund options with rebates ✔️ Great customer service and beginner-friendly |
| Visit Questrade | Visit TD Direct Investing | Visit Qtrade |
Understand that if you go straight to the source (i.e. walk into a bank or financial advisor office), you will likely have to deal with a representative of the investment firm who has a vested interest in you purchasing their own funds, rather than offering you the best funds available from different providers (i.e. You might be pushed toward higher-fee mutual funds that benefit the investment firm rather than low-cost options that are better for you.).
A brokerage account, on the other hand, allows you to purchase whatever investments you want from a variety of firms.
A full-service brokerage will provide you with investment and financial planning advice, but you’ll pay a premium for those services in higher transaction fees. If you know already exactly which mutual funds you want to buy, a discount broker like Questrade is probably your best bet in terms of cost savings.
Online discount brokerages not only charge lower transaction fees, but some also provide discount versions of mutual funds (labelled as “D” series) that come with a lower MER because the trailer commission fee has been removed. Some discount brokers even offer rebates on trailer fees if you purchase funds that charge them.
Buying mutual funds is simple — Just place your order!
Buying mutual funds is as simple as online shopping. If you can place an order on Amazon, you can buy mutual funds! Here's me buying a mutual fund on Wealthsimple - all you have to do is:
- Enter the fund code of the mutual fund
- Enter how many units or how much (in dollar terms) you want to invest
- Preview the order
- Click the “buy” button
Related read: How and when to rebalance your portfolio
Limited mutual fund availability at discount brokerages
If you're struggling to find TD, BMO, or RBC mutual funds on Questrade or Wealthsimple, you're not alone. Many big banks restrict their mutual funds to their own platforms, making them harder to access through discount brokerages. While some mutual funds are available, your options are often limited.
Instead of chasing down mutual funds, consider ETFs (Exchange-Traded Funds). ETFs work similarly to mutual funds, giving you diversification across stocks and bonds, but with much lower fees and no hidden advisor commissions. Most ETFs track an index, meaning you get broad market exposure without paying for expensive active management.
Related reads: How to invest in ETFs & Best ETFs in Canada
If all of this sounds overwhelming and you'd rather pay low fees to have someone handle investing for you—without needing a financial advisor—consider a robo-advisor. Robo-advisors automatically buy and manage ETFs on your behalf, keeping costs low while aligning with your risk tolerance and financial goals.
Check out our picks for Canada's best robo advisors.
The bottom line
Mutual funds get a bad rap in Canada due to their high fees but don’t paint all mutual funds with the same brush. Most new investors are going to start with mutual funds because they’re easily accessible through their bank, cost-effective to set up – often with as little as $25/month, and you don’t pay any trading fees when you buy and sell funds.
Mutual funds aren’t for everyone, and there are pros and cons to consider before pulling the trigger. In many cases, the hefty MERs and built-in trailer fees on mutual funds come without any added service value, and the investments often fail to perform better than lower-fee, exchange-traded funds.
A hot tip: every bank sells lower-cost versions of their expensive mutual funds. These low-cost mutual funds are called index funds, and their fees are half (or less) of what most mutual funds charge. Insist that your bank advisor uses index funds to build your portfolio. If you get any flack (because index funds don’t pay as high of a commission to your advisor), then you may need to open a discount brokerage account and invest in the index funds on your own.
Some index funds and actively managed funds have fees low enough — and performance good enough — to make them worthwhile. If you choose to invest in them, save even more by using a reputable discount brokerage that offers rebates on trailer fee charges embedded in the MERs.
FAQ
Tamar Satov, an award-winning writer and editor, specializes in personal finance and parenting. Her work has appeared in Report on Business Magazine, Maclean’s, MoneySense, and other top Canadian publications, making complex topics relatable and actionable.
Tyler Wade has worked in personal finance for over 5 years writing for brands like Ratehub, Forbes, KOHO, and now Money.ca.
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