Mutual funds are a popular investment option in Canada but finding the best mutual funds can be very tricky for the untrained eye. Deciding between money markets, fixed income funds, equity funds and the other types of mutual funds that exist in Canada require some experience.

Although investing in mutual funds comes with substantial benefits, never invest in something you have no understanding of except you’ve made friends with the Oracle of Omaha. Always seek assistance from competent investment professionals.

What is a Mutual Fund and How Does it Work?

A mutual fund is the pooling of investors’ monies to buy assets such as stocks, bonds, and gold. These assets are referred to as the fund’s portfolio. Fund managers maintain mutual funds.

As an investor in mutual funds, you don’t have to know the other people investing because mutual funds are formal investment vehicles. Investors in mutual funds add their money into a larger investment pool, thereby gaining the power of a much larger investor.

Mutual funds do not give investors any voting rights, unlike stocks. Note that the value of the mutual company determines the performance of the assets bought.

Investors earn returns from mutual funds in three ways. They are:

1. Dividends

Investors are paid a token as a reward for their investment in a mutual fund’s portfolio. Investors are given a choice to either receive a cheque or to get more shares reinvested.

2. Capital Gains

This is achieved when mutual funds sell assets that have increased in price. In simpler terms, an investor gains money from selling his/her mutual fund far more than they paid for it.

3. Sale Of Fund Shares

Then fund holdings increase in price, but the fund manager doesn’t sell, the fund share’s price increases. An investor can sell his/her mutual fund shares for profit in the market.

History of Canadian Mutual Funds 

In 1932, the first Canadian fund, Canadian Investment Fund Ltd. (CIF), was created. It had an asset of $51 million by 1951. In 1996, it changed its name to Spectrum United Canadian Investment Fund and later to Canadian Investment Fund in 2002.

Canadians witnessed the democratization of investments for the average person.

The 1990s experienced the largest influx into mutual funds in Canada when the double-digit interest rates that attracted Canadian savers to GICs fell, and investors moved into investments with the prospect of higher returns.

During the global financial crisis of 2008, Canada escaped with few bruises compared to the USA and other nations. Canadians had tighter mortgage rules and a regulated banking system to thank.

The Canadian mutual funds survived the financial crisis and continue to thrive as a popular and valued savings option for Canadian investors.

Types of Mutual Funds in Canada

Money Market

These investments have higher quality but are short-term. These mutual funds give the lowest returns.

Fixed Income Funds

These funds focus on having a regular cash flow into the fund through interest earned by the fund.

Equity Funds

These investments have a higher risk of losing money since it aims to grow faster than money market or fixed-income funds.

Balanced Funds

These investments focus on achieving higher returns and minimizing the risk of losing money.

Index Funds

Rather than using experts to track the value of mutual funds, these funds make use of software that matches the stocks in the market.

Best Mutual Funds in Canada

The amount of money inside a mutual fund or the asset under management will determine the mutual fund’s value.

Before selecting the best mutual funds in Canada, you should first know the level of risk you can take.

Note that the higher the risk of losing your money, the greater the opportunity for growth and vice-versa. If you are more concerned with mutual funds that can preserve your capital, then conservative mutual funds would be the best to consider

Disclaimer: Rates and product offerings are always changing so this article might not reflect the current market situation. Please contact your financial advisor before making any financial decisions.

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Best Conservative Risk Level Mutual Funds

Below are the best mutual funds in Canada that have a conservative risk level.

1. RBC Select Very Conservative Portfolio A

• Risk level = conservative 
• Net asset = $11 billion
• 1 return = 4.03%
• 3 years return = 2.67%
• 5 years return = 2.91%
• Management fee = 1.45%

2. RBC Select Conservative Portfolio A

• Risk level = conservative 
• Net asset = $24 billion
• 1 return = 3.55%
• 3 years return = 2.71%
• 5 years return = 3.23%
• Management fee = 1.59%

3. RBC Select Balanced Portfolio

• Risk level = balanced 
• Net asset = $27.5 billion
• 1 return = 3.22%
• 3 years return = 3.16%
• 5 years return = 3.91%
• Management fee = 1.67%

Best Fixed Income Mutual Funds

Are you interested in the best mutual bonds in Canada that will provide you with a steady income instead of growth? Then this is for you. Fixed income mutual bonds are conservative and low-risk investments.

Below are some of the best fixed income mutual funds:

1. RBC Bond Fund O

• Description = Canada Fixed Income
• Net asset = $19 billion 
• 1 year return = 8.21%
• 3 years return = 4.71%
• 5 years return = 4.41%

2. TD Canadian Bond Fund – O

• Description = Canada Fixed Income
• Net asset = $13 billion 
• 1 year return = 7.15%
• 3 years return = 4.45%
• 5 years return = 3.90%

3. RBC Global Corporate Bond Fond O

• Description = Global Fixed Income
• Net asset = $11.5 billion 
• 1 year return = 5.94%
• 3 years return = 4.08%
• 5 years return = 4.31%

Best Large Cap Mutual Funds

If you are interested in Canadian mutual funds that will earn you significant income but will expose you to medium-to-high risk, you should consider Large-cap mutual funds.

Large-cap mutual funds invest in large and profitable companies. These companies have a solid track record. But since these companies are already established, their future growth potential is limited.

Below are the best large-cap mutual funds to invest in:

1. RBC European Equity Fund O

• Description = Europe Equity Large Cap
• Net assets = $7 billion 
• 1 year return = 6.36%
• 3 years return = 2.29%
• 5 years return = 4.01%

2. RBC Canadian Dividend Fund A

• Description = Canadian Equity Large Cap
• Net assets = $7 billion 
• 1 year return = -10.95%
• 3 years return = -0.84% 
• 5 years return = 1.88%

3. PH&N US Multi-Style All-Cap Equity Fd O

• Description = US Equity Large Cap Blend
• Net assets = $6.5 billion 
• 1 year return = 10.48%
• 3 years return = 9.07%
• 5 years return = 10.3%

Best Mid and Small Cap Funds

The best mutual funds in Canada that offer higher growth potential are the mid and small-cap mutual funds. Although this comes with risks since the companies you are investing in are not fully established.

They could easily fail. As an investor in mid and small-cap funds, you need to possess a fairly high-risk tolerance.

Here are some of the best mid and small-cap funds to invest in:

1. EdgePoint Global Portfolio Series F

• Description = Global Equity Mid/Small Cap
• Net assets = $3 billion 
• 1 year return = -10.78%
• 3 years return = 1.03% 
• 5 years return = 4.83%

2. EdgePoint Global Portfolio Series A

• Description = Global Equity Mid/Small Cap
• Net assets = $2.5 billion 
• 1 year return = -11.79%
• 3 years return = -0.11% 
• 5 years return = 3.64%

3. Mawer Global Small Cap

• Description = Global Equity Mid/Small Cap
• Net assets = $2 billion 
• 1 year return = 8.96%
• 3 years return = 9.90% 
• 5 years return = 11.07%

Emerging Market Mutual Funds

The best mutual funds in Canada that offer high risk but a potentially high reward are mutual funds invested in emerging markets. You invest in countries that are still developing their infrastructure and financial markets.

Here are the best emerging market mutual funds to invest in:

1. RBC Emergency Markets Equity Fund 

• Description = Global Emerging Markets Equity 
• Net assets = $4 billion 
• 1 year return = -3.82%
• 3 years return = 2.09% 
• 5 years return = 5.08%

2. Fidelity Emerging Markets Portfolio Sr O

• Description = Global Emerging Markets Equity
• Net assets = $2 billion 
• 1 year return = 5.54%
• 3 years return = 6% 
• 5 years return = 7.93%

3. BlueBay Emerging Markets Corp Bd O

• Description = Emerging Market Fixed Income
• Net assets = $1.5 billion 
• 1 year return = 5.66%
• 3 years return = 4.47% 
• 5 years return = 6.76%

There you have it. These are some of the best mutual bonds in Canada.

Are Mutual Funds Safe?

Many Canadians find investing in mutual funds worrisome. Some of their fears are quite understandable, while others – not so much. Quick-money schemes promising quick and high returns for investors have ended up wrecking many financially. This is one of the reasons why mutual funds are perceived as a not-so-safe investment option.

No investment is entirely risk-free, but mutual funds are fairly safe as far as investments are concerned. Mutual funds companies are under the supervision of Canadian regulatory agencies. No one can skedaddle with your hard-earned cash. You can go to bed with no worries.

Mutual funds are taxed in such a way that it doesn’t affect an investor’s returns. So this means that the longer you stay invested, the more profit you earn. A lot at the end of the day depends on the investor and how investment savvy they are.

Advantages Of Mutual Funds 

• Easy to Understand

Compared to other financial products, mutual funds are easier and simpler to use and understand. It requires nothing much for you to be a successful investor.

• Easy to Purchase

Mutual funds are readily accessible at brokerage firms, banks, insurance companies, and even online.

• Diversification

Mutual funds create an opportunity for you to reduce the risk to your assets by a mix of stocks from different industries and investments of different types.

• Liquidity

The value of mutual funds does not drop wildly during financial emergencies when you might want to sell out in a hurry.

• Professional Management

Buying a mutual fund automatically leaves the burden of decision-making on your professional manager. You don’t need to bother about how to invest your money. It is now left for you to decide if you can work with the funds’ manager or make decisions for yourself.

FAQs

Will I lose money in mutual funds?

There are no assurances. It is possible to lose some or all of your funds.

When is the best time to invest in mutual funds?

Any day, any time. But, be sure to consider your risk tolerance, financial capacity, and financial goals before investing.