It’s a credit to TD that prudent investors have been able to count on TD’s renowned e-Series index funds, which continues to perform strongly despite having a low MER. Even with the emergence of competition with ETFs and Robo-advisors, TD e-Series funds remain the benchmark for growing your passive investment portfolio.
This piece is going to break down the TD e-Series fund and compare it to ETF investing. You’ll also learn everything you need to know about TD e-Series funds and why it is one of the best mutual funds for you.
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.
What Are TD e-Series Funds?
TD e-series funds are cheap and affordable index mutual funds. These funds are tailored for passive investment and can mirror the performance of the stock market index. For instance, the Canadian Bond Index e-series fund mirrors the S&P/TSX index, also known as the Canadian investment-grade bond market. It is sound financial advice to diversify your portfolio using a variety of TD e-series funds.
What is the advantage of the TD e-Series Fund?
TD e-series funds have the edge over other competing mutual funds because of their low MER. For instance, the TD Canadian Index has an MER currently pegged at 0.33%. If you compare this with the regularly traded equity mutual pegged over 2.00%, the vast savings on investment fees are apparent.
It is now reasonably straightforward to hold the TD e-series funds in an investment portfolio. In the recent past, TD e-series were only available through TD using TD Direct Investing or convert funds in a mutual fund account into TD e-series fund.
These days, it is possible to buy TD e-series funds from several discount brokerages in Canada. It is even possible to mix different mutual funds from the Big Five, such as the RBC Direct Investing or the CIBC Investors Edge, to diversify your portfolio.
What you need to know about the Update to the TD e-Series Fund
In August 2019, several changes were slated for several TD Mutual funds. The focus is on the following TD e-Series funds:
- TD Canadian Index Fund
- TD Canadian Bond Index Fund
- TD US Index Fund
- TD International Index Fund
Before now, the above e-series funds could be directly invested in stocks and bonds. But the new change enables e-Series funds to own ETFs, which also invest in individual stocks and bonds. While this might seem like a conflict of interest for TD e-series to own TD ETFs, it is cheaper in fees and allows TD to take advantage of existing economies of scale.
TD has 13 ETFs on the Toronto Stock Exchange. The current range of the e-Series fund MERs is from 0.33% up to 0.5%, while similar indices for TD ETFs are lower at 0.06% up to 0.2%. Be mindful that the indices are identical, not the same. For instance, the TD Canadian Index Fund follows the S&P/TSX Composite Return Index.
On the other hand, the TD Canadian Equity Index ETF follows the Canada Broad Market Index (Solactive). Because the Solactive Index is cheaper in index-licensing fees, it costs less for TD to track it, thus shaving some base points out of the ETF operating cost compared to the S&P index-tracking fees. TD has decided to go for four Solactive indices in place of TFSA and MSC indices for their e-series funds. These are:
Bonds: The current standard is the FTSE Canada Universe Bond to be swapped by Solactive Broad Canadian Universe.
US Equities: The Standards & Poor 500 to be swapped by the Solactive United States Large Cap.
Canadian Equities: The S&P/TSX Composite to be swapped by the Solactive Canada Broad Market.
International Equities: The MCSI EAFE to be swapped by the Solactive GPS Developed Markets.
Another significant change is the ability for outside investors to purchase TD e-series funds. Many third-party discount brokerages can now sell these funds. Whether other banks in the Big Five will follow TD’s lead by offering mutual funds that own their ETFs remains to be seen. TD may also decide to create another mutual funds package to compete with the all-in-one package of BMO, Vanguard, and iShares. These will further stimulate the competition for traditional investment advisors and Robo-advisors to create investment products that set them apart from the rest and appeal to investors.
TD e-Series vs. ETFs
It is not unusual to wonder the difference between ETFs and TD e-Series funds mainly because they compete in the same market. These are the two primary options for diversifying your index portfolio. They are two excellent options for index investments because of their affordable fees, extensive market exposure, and history of strong performance. Below is a comparison between both types of funds.
TD e-Series | Vanguard ETFs
MERs: 0.36% – 0.41%. | 0.12% – 0.25%
Transaction fee: C$0 based on brokerage | C$ based on brokerage
Auto contributions: simple to set up with at least C$25 monthly | not possible in most cases.
Rebalancing: manually| manually or not at all with a single ETF portfolio
Ease of Trade: orders can be purchased anytime and depend on the dollar value | orders can be bought only during market hours and are dependent on the number of shares.
Optimum Platform: Easy Web (TD Mutual Fund) or TD Direct Investing |Questrade
Dividends: automatically reinvested | Mandatory for DRIP setup
Three-year ARE: (40% bonds, 60% equity): 7.84% | 7.80%
Ten-year ARE: (40% bonds, 60% equity)7.84% | 7.80%
Twenty-five year ARE: (40% bonds, 60% equity) 6.62% | 6.68%
From the above, it is apparent the similarities of both funds over time. This point is logical because both strategies receive similar exposure to the whole market. However, the TD e-series fund has a more hands-off approach because of the ability to automate the purchase. Rebalancing is done by hand but automated for single ETFs. MERs are relatively higher but not quite as high as traditional mutual funds.
In sum, whether ETFs or TD e-Series funds, the investment strategy is essentially the same. Deciding which to go for boils down to personal preference, the platform that’s practicable for you, whether you want manual or automated and how you want to reinvest your funds.
The best Way to Buy TD e-series funds
One of the best ways to purchase TD e-series funds is through a discount brokerage account via TD or a third party. If you own an account, it is as simple as choosing your preferred funds and buying without paying trading fees. However, there may be a minimum purchase value depending on where your account is held. If you want to open an account with an investment representative of TD Canada Trust, you’ll have to follow the steps below:
- Inform your investment representative you need to open a TD Mutual Fund Account.
- Your investment representative will give you a questionnaire to fill known as the Customer Information Profile.
- Fill out and sign your application form.
- Prepare to make pre-authorized contributions using your bank account.
- Inform the investment representative you want your account converted to a TD e-series account
- Once you receive confirmation, log into your TD e-series account via TD Easyweb.
From the above, you can see there’s quite a bit to do to invest in TD e-series funds, but it’s still worth it. Despite the emergence of ETF investing, the TD e-series fund still maintains good value and is an excellent way to diversify your investment portfolio.
Who is the distributor of TD Mutual Funds?
The TD Mutual Funds, including the TD e-Series Funds, are wholly managed by the TD Asset Management Inc, an arm of the Toronto-Dominion Bank, and available through TD Investment Services as the principal distributor.
Are Mutual Funds Worth It?
Mutual funds are an excellent option to grow wealth because they can hold a vast array of securities, making them extremely attractive for investment purposes. Mutual funds allow you to reduce your risk, diversify your portfolio, and lower costs.
Can I lose all my money in a mutual fund?
As with all investments, there is an element of risk, and this also includes mutual funds. The amount you make or lose depends solely on the stock and financial market performance. There is no assurance that you will not lose money investing in mutual funds. It is possible to lose all of your money in specific extreme scenarios. It is, therefore, essential to know how mutual funds work before making any investment.