What is a mutual fund?

A mutual fund is a pool of money and investments (e.g. stocks, bonds and other types of investments) that are managed by a professional fund manager.

A mutual fund typically focuses on specific types of investments. For example, a fund may invest in:

• high-quality government and corporate bonds,
• stocks from large companies,
• stocks from certain countries,
• stocks in certain industries, or
• a mix of stocks and bonds.

How does a mutual fund work in Canada?

When you put money into a mutual fund, it becomes part of an investment pool managed by professionals who buy stocks, bonds or other assets on behalf of the fund. As assets in the fund rise in value, your share of the fund (typically measured in “units”) will also increase in value. If the value of the fund’s assets decreases, so will the value of your units.What are the benefits of mutual funds?

Investments chosen by professional fund managers

When you purchase units in a mutual fund, a professional manager will buy and sell stocks and bonds on your behalf. They’ll manage all the buy-and-sell decisions, so you won’t have to.

Fund managers have extensive experience and deep research capabilities in selecting investments.

Diversify your investment portfolio

Mutual funds are an easy way to help diversify your portfolio. Diversification means spreading your investments over several kinds of asset categories, geographic markets and investment styles. This means a negative performance in any single investment or country likely won’t significantly hurt your entire portfolio. 

When you buy units of a mutual fund, you’re pooling your money with other investors. So, if you’re a small investor, you can own a wider mix of investments than you might be able to afford by yourself.