5 steps to buying a mutual fund
1. Decide how much to invest and for how long
It’s important to have clear financial goals before you invest and a plan for how long you’ll be investing for. For example, a young investor potentially has many years to invest. But if you’re approaching retirement, you may need to get your money out sooner. Learn more about investing.
2. Choose the type of fund
Risk tolerance is a function of both your ability and your willingness to tolerate risk. How much risk you’re willing to tolerate will help you choose the types of funds to invest in. For example, consider a fixed income fund that pays a fixed rate of return if you don’t want much risk. If you’re more interested in growth, consider an equity fund. But you’ll need to be comfortable with the added risk. If you’re trying to balance risk and return more moderately, consider a balanced fund. Make sure each fund you choose fits with your other investments and overall investment plan.
3. Shop around to compare fees and performance
All mutual funds have fees. Some have higher fees than others. Fees reduce your returns. Understand what fees you pay directly, such as sales charges, and what fees the fund pays, such as management fees and operating expenses. The fund’s management fee and operating expenses make up a fund’s management expense ratio or MER.
Compare the MERs and performance of similar funds. Past performance can give you an idea of how a fund performed in certain market conditions. But it doesn’t guarantee that it will perform that way in the future.
Disclosure documents: Fund Facts
Before you buy a mutual fund, read its Fund Facts or simplified prospectus and other disclosure documents such as its most recent financial statements and management report on fund performance to help you decide if it’s right for you. These documents are available from your advisor and the mutual fund company’s website. Beginning May 30, 2016, mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a conventional mutual fund.
4. Choose a financial advisor or mutual fund company
Buy only from registered firms and individuals. Anyone selling or providing advice about mutual funds must be registered with their provincial securities regulator. In Ontario, this is the Ontario Securities Commission. Understand how your advisor will be compensated for selling you a mutual fund. Find out if they focus on the funds of a certain company or a certain family of funds.
5. Complete the application and buy the funds
Beginning May 30, 2016, mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a conventional mutual fund.
You’ll have to provide some personal information, such as how much risk you are willing to take, and how much you know about investments. Securities law requires that an advisor get this information from you before offering advice and recommendations. Sign the form and keep a copy for your files.
Each fund requires that you buy a minimum amount (for example, $500 or $1,000). The amount varies from fund to fund.
You can make a lump sum purchase or arrange to make regular monthly purchases of units or shares of mutual funds through a Pre-Authorized Debit (PAD) or Pre-Authorized Contribution (PAC).
If you want to cancel your order
In general, you can cancel your order to buy a mutual fund within 48 hours after you receive confirmation of your order. Rules vary in some provinces.
Take action
Use this mutual fund fee calculator to see how fees and other costs can affect your investments.
Summary
5 steps to take action
- Decide how much to invest and for how long
- Choose the type of fund
- Shop around to compare fees and performance
- Choose a financial advisor or mutual fund company
- Complete the application
