Mutual Funds

The next section of the Action Financial Group Orientation Series will deal with Investing and the various investment products or assets:
• Saving, banking, investing
• Cash and High Interest Savings Accounts (HISA)
• Guaranteed Investment Certificates (GIC)
• Bonds
• Stocks
Mutual Funds
• Exchange Traded Funds (ETF)

Today we will deal with Mutual Funds.

A mutual fund is an investment product that is created by a mutual fund management company. They gather funds from a number of investors, pool the funds, and use the funds to purchase a variety of investment products such as stocks or bonds (which have been described in previous articles). The investors own units of the fund, which in turn owns the various stocks and/or bonds, so by extension, each investor owns part of each stock and bond in the pool. One of the main attractions for investors to mutual funds is the ability to invest a relatively small amount of money into a mutual fund, and gain investment exposure to a wide variety of investments, far beyond what the investor could achieve if they tried to invest individually into a wide variety of stocks and bonds.

Because a mutual fund can own stocks and/or bonds, it is important to understand at least generally, the underlying makeup of the mutual fund. An investor who is looking for more long term growth and is willing to take on more risk might choose a pure stock mutual fund, whereas a conservative investor seeking more security might choose a mutual fund that holds mostly bonds, and only a small selection of stocks.  

The management company is responsible for doing the research, stock and bond selection, and trading within the fund, for the ultimate benefit of all mutual fund unit holders. For these services, they charge a management fee.

Fees matter, but they are not the only consideration when choosing a mutual fund. Some other factors include the type of fund with its underlying holdings, the rate of return before fees, volatility, and geography.

Mutual funds are purchased from the management company, via an investment advisor or directly. The funds are valued at the close of stock market trading daily, based on the weighted price of all the holdings in the mutual fund. The value of each mutual fund unit is the total value of the fund divided by the number of units outstanding. This value is called the Net Asset Value per share (NAV). An investor seeking to buy a particular fund might for example place a purchase order for $10,000. The purchase will be completed at the close of business when the unit price is known. The number of shares (including partial shares) will be calculated by dividing the $10,000 by the price per share at the close of the day. Similarly, an investor holding a mutual fund and wanting to sell it would place the order to sell through their advisor, and the transaction would be completed at the close of the day by selling enough units multiplied by the closing unit price, to result in the amount of sell or redemption desired by the investor. Investors do not buy or sell mutual fund shares directly to and from one another. The transactions always flow through the mutual fund management company.

Mutual funds are as risky as the combined total of all the stocks and/or bonds held within the fund. Since the mutual fund holds a wide variety of individual stocks and/or bonds, this diversification tends to lessen overall risk compared to holding just one or two individual stocks. Mutual funds are not guaranteed investments. Their value moves up or down with the underlying values of all the individual stocks and bonds held by the fund.

People invest in mutual funds in the hopes that the value will appreciate and grow over time, and produce interest or dividend income.

We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website anytime at www.actionfinancialgroup.com.

In the next section we will deal with Exchange Traded Funds.  

Karin Rimnyak, Certified Financial Planner®

Investment Advisor



David Dryburgh, Certified Financial Planner­®
Investment Advisor


Ian Barrie, Certified Financial Planner®
Investment Advisor


This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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