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 The
Money Management Newsletter: Investing
in Mutual Funds
Match mutual funds to your personal needs
By David J. Newman
Director, Financial Information Services
Money Management Newsletter
When mutual
funds first caught the attention of Canadians more than a decade ago,
investors' choices were limited. Today, Canadians can choose from more
than 1,800 mutual funds, each with its own investment
objective. For the average investor, having so many funds available
makes it difficult to make decisions. You can make the right choice by
matching mutual funds to your personal needs.
To find a mutual fund that is right for you, you will
first need to choose a mutual fund category and a mutual fund manager.
Mutual funds can be categorized by what they provide
and what they invest in. They provide:
- Income
- A balance of income and some growth
- Growth
What they invest in is determined in turn by what they
aim to provide:
- Income funds invest in fixed-income investments,
including bonds, treasury bills, and mortgage-backed securities
- Balanced funds invest in a combination of fixed-income
investments and equities (shares of companies)
- Growth funds invest in the stocks (shares or "equity")
of a company. Equities offer no guarantee, but your money can grow over
time. For example, the stock market fluctuates from day to day, but
stocks have outperformed all other investments over the long term.
Funds can also be categorized as Canadian or International.
This is an important distinction because Registered Retirement Savings
Plans (RRSPs) are limited to a specific amount of foreign content.
Once you have chosen the mutual fund category or combination
of categories that matches your needs, you will need to choose a mutual
fund manager and a specific mutual fund. You should evaluate a mutual
fund on the basis of the following criteria before buying:
- the fund's objective and risk level
- the investment style and performance track record
of the manager
- the various options offered by the mutual fund company,
including pre-authorized chequing and systematic withdrawal plans
You can obtain a wealth of information from your financial
adviser, mutual fund companies, financial books and magazines and
the mutual fund section of newspapers. You should also carefully read
the prospectus
you receive when you buy your mutual fund. It contains important information
about the fund's investment objective, any fees and expenses and how to
buy and sell your units.
Invest some time before choosing who will manage your
investment. By doing so you can control part of the risk and gain an opportunity
to achieve greater rewards.
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