Mutual Funds FAQs
What are mutual funds?
Mutual Funds are a pool of investors' money invested on their behalf by a professional money manager in various securities. Mutual funds primarily invest in three broad types of asset classes: cash, stocks, and bonds. BMO Mutual Funds further groups their funds into Security, Income, Growth, Equity Growth, U.S. Dollar Funds and Managed Solutions, each with a unique investment style.
What are the benefits of mutual funds?
Mutual Funds offer many benefits including:
- Professional Management – Decisions are made by investment professionals
- Flexibility – Low minimums to start investing
- Diversified Portfolio – Reduce risk by spreading investments across securities
- Broad range of investments – Access to investment opportunities around the world, across various sectors, asset classes and geographies
- Ability to buy and sell daily – Conveniently access your money when you need it
What are Managed Solutions?
Managed solutions typically 'wrap' a mix of underlying mutual funds and/or ETFs into a single portfolio providing investors with unique features and benefits:
- Ease of Use: Created for clients seeking a one-stop solution that can meet their long term goals
- More Return, Less Risk: Portfolios designed to target the maximum potential return for a given level of risk
- Best of Both Worlds: Invest in the best of actively managed mutual funds and/or passively managed ETFs
What are the differences between each of the Series of the Funds?
Series A are no-load, meaning the investor does not pay any chargers to buy or redeem units.
Advisor Series are available under the Front-end (FE), Low Load (LL), or Standard Deferred Sales (DSC) charge options. With the FE option, the investor may pay a sales charge up-front at the time purchase, and with the DSC and LL option, an investor may pay a redemption fee if they redeem within a specified time period.
Series T5, T6 and T8 provide investors with regular, predictable cash flow. The series distributes a fixed monthly distribution based on 5%, 6% or 8% of the securities net asset value as of December 31st of the prior year. Series T5, Load Series T6 and Series T8 are available under the Front-end, Low Load or Standard Deferred Sales charge options.
Series F are for investors who participate in a dealer-sponsored wrap program or flat fee account. The management fee for Series F is lower than for Advisor Series because these investors pay an annual fee based on the value of their investments that is outside of the mutual fund fees.
Classic Series can only be purchased under the FE option, with lower service fees and management fees than Advisor Series.
What are the costs associated with mutual funds?
The cost of owning a fund is known as the Management Expense Ratio (MER) and includes all the costs of running the fund. MER includes the management fee, operating expenses and applicable taxes. The MER varies by fund and by series. Each fund may also be subject to a Trading Expense Ratio (TER). The TER is the Trading Expense Ratio and represents the costs each fund spends on brokerage commissions for buying and selling the underlying investments. The MER and TER for each fund at the series level can be found on the most recently filed fund facts.
What other sales charges may apply to mutual funds?
Advisor Series, Series T5, Load Series T6, and Series T8 may also have a sales charge or redemption fee. Series A does not have any sales charges or redemption fees.
The sales charge or redemption fee depends on the purchase option as follows:
|Purchase Options||Sales Charge||Redemption Fees|
|Front-End (FE)||You pay a negotiated fee to your dealer at the time of purchase of 0-5% for all funds expect for BMO Money Market Fund which is up to 2%.||None|
|Deferred Sales Charge (DSC)||None paid by investor||A declining redemption fee will apply if the investment is redeemed within the first 7 years of purchase. This redemption fee reduces from 6% in the first year to 0% after 7 years.|
|Low Load Deferred Sales Charge (LL)||None paid by investor||A declining redemption fee will apply if the investment is redeemed with the first 3 years of purchase. It reduces from 3% in the first year to 0% after 3 years.|
What is Redemption Fee Schedule for DSC and LL sales charge options?
Redemption fees are applicable only to investments made in mutual funds purchased under the DSC or LL options. The fee is charged on redemptions which are not part of the "Free Redemption Amount" (applicable to the DSC option only), and are not switched in to another BMO Mutual Fund with the same sales charge option. The fee is based on the cost of the investment redeemed, including the cost of reinvested distributions, at the following rates:
Are my mutual funds covered by CDIC (Canadian Deposit Insurance Corporation)?
No. CDIC is a Federal Crown corporation created to protect eligible deposits held by you with financial institutions. Mutual fund securities are not eligible deposits.
Why does the price of my fund fluctuate every day?
Mutual Funds are considered long-term investments. The values of individual mutual funds fluctuate based on the underlying investments held by the funds which are, in turn, affected by changes in interest rates, economic conditions and company news.
Funds invested in equities generally fluctuate more (or are more volatile) than those invested in fixed income securities, but also tend to provide higher returns over the long-term.
How are mutual fund distributions taxed?
If you hold your investments in a registered account, generally neither you nor your registered plan is subject to tax on distributions.
If you hold you investments in a non-registered account, distributions will be subject to tax whether they are received in cash or reinvested in additional securities.
Generally, tax implications for mutual fund distributions are as follows:
- Dividends – generally treated as ordinary income and taxed at your marginal tax rate. However, where a mutual fund pays a distribution out of dividends received from Canadian companies, the investor can treat the distribution as if it were a dividend from a Canadian company. For investors who are Canadian resident individuals, this means that the distribution qualifies for the lower effective tax rate applicable to dividends from Canadian companies.
- Interest and Other Income – generally treated as ordinary income and taxed at your marginal tax rate.
- Capital Gains – if a mutual fund pays a distribution out of its net realized capital gains, an investor can usually treat the distribution as if it were a capital gain realized by the investor. Half of such a capital gain distribution has to be included in the investor's income.
- Foreign Income and Foreign Tax Paid – if a mutual fund pays distributions out of income earned from foreign investments, an investor that pays Canadian tax may be able to claim a foreign tax credit for foreign tax paid by the mutual fund.
- Return of Capital (ROC) – this type of distribution is generally not taxable, but will decrease the adjusted cost base (ACB) of the securities. When the investor disposes of the securities, the lower ACB will increase the capital gain (or decrease the capital loss) that would otherwise result.
Why am I taxed on a distribution that was reinvested in additional units?
If you hold you investments in a non-registered account, income and realized capital gains distributions will be subject to tax whether they are received in cash or reinvested in additional securities. The amount of reinvested distributions is added to the ACB of your securities, so that you do not pay tax on the amount again at a later date.
What is a BMO Trust Fund?
A mutual fund can be set up as a trust or a corporation. The BMO Trust Funds are organized as trusts. When you invest in a BMO Trust Fund, you are buying units of a trust.
A BMO Trust Fund flows its taxable income through to investors in the form of distributions. Investors are generally taxed on this income as if they earned it directly.
Is switching between series of the same BMO Trust Fund a disposition for income tax purposes?
You can switch your units of one series of a BMO Trust Fund into units of another series of the same fund. This is called a redesignation and should not result in a disposition for income tax purposes.
Is switching between BMO Trust Funds a disposition for income tax purposes?
You can switch units from one BMO Trust Fund into another BMO Trust Fund. This is a disposition for income tax purposes and may result in a capital gain or capital loss. Net capital gains are taxable.
What are BMO Global Tax Advantage Funds (GTAF)?
BMO Global Tax Advantage Funds are classes of BMO Global Tax Advantage Funds Inc., which is a corporation. When you invest in a BMO Global Tax Advantage Fund, you buy shares in a series of a class of the corporation. Distributions from a mutual fund that is a corporation are generally treated differently for tax purposes than distributions from a mutual fund that is a trust. Also, you can switch your investment between different BMO GTAF funds without realizing capital gains on your securities at the time of the switch.
Is switching between GTAF funds a disposition for income tax purposes?
You can switch shares of one GTAF fund into shares of another GTAF fund. This is called a conversion and is not a disposition for income tax purposes.
Who receives tax slips and why?
As required by tax legislation, T3, T5 and NR4 tax slips are issued to both the client and reported to the Canada Revenue Agency for any income or capital gains distributed from the fund. These slips are only issued for investments held in non-registered accounts.
What is the difference between a T3, a T5 and a NR4 tax slip?
T3 slips are issued for mutual funds that are trusts. T5 slips are issued for mutual funds that are corporations. NR4 slips are issued to report amounts paid to non-residents of Canada.
What are Releve 16, Releve 3 and Releve 2?
For residents of the province of Quebec, BMO Mutual Funds issues these provincial income tax forms, equivalent to the following Federal forms:
When can I expect to receive my tax slips?
BMO Mutual Funds T3s and T5s are sent out annually at the end of February. NR4s are sent out in mid-March.
How do I invest in BMO Mutual Funds?
You may choose to purchase BMO Mutual Funds through a Financial Advisor. A Financial Advisor is a person who is a representative of a Dealer, is registered with the securities authorities, handles the public's orders to buy and sell securities and usually charges a commission for that service.
What is the minimum amount required to invest with BMO Mutual Funds?
For all accounts, except a RRIF account, the minimum initial investment is $500, and minimum subsequent investment is $50. For a RRIF account, the minimum initial investment is $5,000.
For purchases of US Dollar funds, payment must be made in US currency.
If you set up a Continuous Savings Plan (CSP), the minimum initial investment is $50 a month for all accounts.
What is the process for switching between Canadian and U.S. currency funds?
You cannot switch between funds purchased in U.S. Dollars and funds purchased in Canadian dollars. You can only switch between funds purchased in the same currency.
What is a Continuous Savings Plan (CSP)?
Also known as the BMO Mutual Funds Asset Builder, this program makes it easy for you to make regular investments automatically in the fund or funds of your choice. We can make preauthorized withdrawals from your chequing account with a Canadian bank on a regular basis and invest them automatically into the funds you choose. The minimum amount of each investment is $50 (US$50 for US NAV funds).
What are the benefits of a CSP?
Making regular investments through a CSP can reduce the cost of investing. For example, if you invest $100 in a fund each month, that money will buy more securities of the fund when prices are low and fewer securities when prices are high. Over time, this can mean a lower average cost per security than if you had made one lump-sum purchase.
Setting up a CSP provides convenience because investing will be automatically done for you at the frequency you choose and will help ensure you remain disciplined with your savings to meet your investment goals.
What is BMO Mutual Funds Allocation Averaging Program or Dollar Cost Averaging (DCA)?
Under this program, which is available only through dealers, you can arrange for regular) transfers from a lump sum investment in a BMO Money Market Fund or BMO U.S. Dollar Money Market Fund to a maximum of five other funds of your choice. The minimum initial investment is $5,000 CAD (US$5,000 for US NAV Funds) and the minimum transfer amount to any one fund each time is $50 CAD (US$50 for US NAV funds).
What is a Systematic Withdrawal Plan (SWP)?
This program is also known as an Automatic Withdrawal Account (AWA). If you hold at least $10,000 in investments in any of the funds (US$10,000 in US NAV funds), you can arrange for a regular redemption of securities from your account.
The minimum amount for each payment is $100 (US$100 for US NAV funds) and you can receive the payments either by cheque or by direct deposit into your bank account at a Canadian financial institution. This service is not available to investors who hold their securities in a registered plan. It's important to keep in mind that, if your redemptions are more than the distributions paid by a fund and any changes in the value of your securities, you will begin to reduce your original investment.
What is a Distribution Transfer Program?
Under this program, which is available only through dealers, you can arrange to have distributions made by one fund to be automatically reinvested in another fund or funds within the same series or currency. The reinvestment will be processed and trade dated on the same valuation date as if it was reinvested in the fund that made the distribution. This service is not available to investors who hold their securities in a registered plan.
Mutual Funds Glossary
Eligibility: Indicates types of registered plans a mutual fund may be held in.
Equity (Stock): Shares of ownership in a company.
Equity Growth Funds: A category of BMO Mutual Funds, these funds maximize return potential through investing in specific market sectors or emerging economies with greater growth potential. These may entail greater risk than conventional growth funds.
Inception Date: The date that a fund became available for sale to investors.
Income Funds: A category of BMO Mutual Funds, these funds typically invest in bonds, mortgages and other fixed income securities. The level of income and risk depend on the characteristics of investments in the fund's portfolio.
Investment Objectives: Included in the prospectus and fund facts, the fund's objective outlines the goals of the fund.
Operating Expenses: Each fund pays operating expenses that include administration fees related to the day to day operation of the fund such as audit, legal, recordkeeping system and custodian fees. Operating expenses are included in the management expense ratio (MER) of a fund.
Tactical Asset Allocation: An investing approach that aims to take advantage of perceived market opportunities by increasing a portfolio's weightings in some assets and reducing other assets correspondingly. This approach may also include placing upper and lower bounds around asset class allocations. For example, for equities in a portfolio, a lower bound might be 40%, an upper bound 80% and a neutral weighting 60%.
Trading expense ratio (TER): The TER represents the costs each fund spends on brokerage commissions for buying and selling the underlying investments. The TER is not part of the MER. Typically, new funds, funds with high portfolio turnover or foreign securities will have a higher TER.
Trailing Commission (Service Fees): This is an ongoing type of service commission paid by fund companies to dealers and brokers for the continued advice and service they provide to investors. They are usually based on the value of the units of the funds that their clients hold.
TFSA: A plan that provides tax-free growth on savings in which investors can make tax-free withdrawals at any time. There is an annual contribution limit, with the ability to carry forward unused contribution room.
Included below are the answers to most of the commonly asked questions on BMO ETFs. If you have an additional question or comment, please contact us.
Financial advisors can also contact their BMO Mutual Funds wholesaler.
What are ETFs?
ETFs are open-ended funds that are listed and traded on a stock exchange, and can be bought or sold directly during trading hours, much like a stock. They typically represent a basket of securities which may consist of stocks, bonds, or other assets such as commodities. ETFs offer many benefits to investors, including diversification, liquidity, low fees, flexibility, transparency and tax efficiency.
What are the benefits of investing in ETFs?
- Efficient access to core investments and focused market segments.
- Access to institutional strategies by retail clients.
- Provide intraday liquidity through buying and selling during the trading hours of the stock exchange.
- Flexibility to buy on margin or sell short.
- Diversification offers potentially lower risk than individual securities.
- Ability to have exposure to a portfolio of stocks or bonds.
- Portfolio transparency on a daily basis.
- Cost-efficient due to relatively low management fees.
- Tax efficient, with potential for relatively low capital gains distributions.
How do I buy ETFs?
Shares of BMO ETFs can be bought and sold during normal trading hours through registered brokers and dealers in the province or territory where you reside. ETFs are not purchased directly from the ETF provider. To trade BMO ETFs, you can use any online, discount or full-service brokerage account. Your broker will charge their usual commissions or fees.
How is the price of an ETF determined?
The trading price of an ETF is approximately equal to the value of the underlying holdings in the portfolio and any other asset or liabilities, such as cash and dividends receivable. The price of the ETF will move up and down during the trading day with supply and demand, but will generally reflect the price movements in the underlying holdings. Unlike a traditional mutual fund where a client receives the end of day net asset value (NAV), an ETF client trades on the intra-day price on the exchange.
When placing a trade for an ETF, should I place a Market Order or Limit Order?
In general, it may be advisable to consider using limit orders when trading any security, including ETFs, especially with large amounts. This allows investors to control the price, at which they are willing to buy or sell, something which can be very important in volatile markets.
What determines the Bid and Ask of an ETF?
The bid and ask for an ETF are similar to a stock, where the bid reflects what investors are willing to pay to buy units, and the ask reflects what investors are willing to sell units for. Unlike a stock, ETFs are open ended, meaning that supply and demand is not limited, so that a large order can result in the creation or redemption of ETF units. The bid and ask will reflect the average bid and ask of the underlying portfolio, and in addition, natural liquidity between buyers and sellers of the ETF may narrow the bid-ask spread.
What is your target market for BMO ETFs?
BMO ETFs are designed to serve the needs of all types of investors, whether they are institutional or self-directed investors, or deal with a financial advisor.
Are all BMO ETFs eligible for registered plans?
Yes, all BMO ETFs are RRSP, RRIF, RDSP, and TFSA eligible. In general, BMO ETFs that qualifies as a mutual fund trust and that are listed on an established market index are eligible for registered plans, you should consult with your own broker or tax advisor regarding your personal circumstances.
Can non-residents, including U.S. residents, invest in BMO ETFs?
BMO ETFs are offered through a prospectus filed in accordance with Canadian securities laws and regulations. Neither the securities of the ETFs nor the ETFs are registered with the United States Securities and Exchange Commission, or in any other jurisdiction. Generally persons that are non-residents may invest through a broker by placing purchase orders on the Toronto Stock Exchange.
How does BMO's entry into the ETF market affect its mutual fund business?
ETFs and mutual funds are both designed to provide easy access to a variety of investment options and both can be used to build an optimal portfolio that is right for each client. By expanding its range of investment products to include ETFs, BMO is giving investors additional choices so that they can make appropriate investment decisions tailored to meet their specific needs, whether it is on their own or with the assistance of a financial advisor.
How do you choose the weighting methodology for your ETFs?
BMO ETFs look at each portfolio separately and selects the most appropriate weighting methodology for that ETF. Market capitalization weighting for broad markets and diversified exposures provide the expected return of well followed indexes. Smart beta or strategic weighting increases an ETF's exposure to the desired factor, such as low volatility, higher income, or quality. Equal weighting removes concentration risks where sectors and industries can be skewed by high concentrations in one or two larger companies.
How does an ETF follow an Index over time?
ETFs position their underlying holdings to generally provide the return of the Index as closely as possible, less the ETFs expenses. Typically, an ETF will trade its holdings whenever the Index rebalances, such as quarterly, monthly, or daily, or whenever a corporate action occurs. Whenever the Index adds or subtracts holdings, the ETF will generally complete the same activity.
What is tracking error?
Tracking error is the performance difference between an ETF and its benchmark index.
Will BMO ETFs have any exposure to currency risk?
Whenever holdings are traded in a currency other than the Canadian Dollar, currency movements are a key factor in total returns. BMO ETFs may have exposure to the local currencies where the underlying holdings are traded, or they may be currency hedged to remove most of the currency returns from the underlying holdings. BMO ETFs that are currency hedged generally have "Hedged to CAD" included in the ETF name.
What are Covered Call ETFs?
The BMO Covered Call ETFs provide call premium income in addition to the dividend income on the portfolio. This strategy involves selling call options against the underlying holdings, where a premium is received in exchange for the excess upside return of the holding. This strategy is most effective when the underlying portfolio is expected to be range bound (limited expectations of large price movements). The covered call strategy is considered to be defensive as the additional income partially offsets potential portfolio decreases while removing the participation in large market upswings.
Are you developing more ETFs?
Our goal is to deliver a comprehensive line-up of BMO ETFs that meet the current and future needs of ETF investors. To do this we will be evaluating our ETF line-up on a regular basis and making additions as we identify opportunities.
What are the benefits of Fixed Income ETFs?
Fixed income ETFs incorporate all of the benefits of a typical ETF - diversification, liquidity and cost effectiveness, and are effective core holdings in a portfolio. A fixed income ETF may also be appropriate for those investors who wish to take an active role in positioning their fixed income portfolios to reflect their own economic expectations. With BMO ETFs, investors can use long or short positions, as well as target specific fixed income durations or credit risks.
What is the Fixed Income Weighted Average Coupon?
The interest paid on a bond is known as the coupon rate. The weighted average includes all of the underlying holdings in the portfolio.
What is the Fixed Income Weighted Average Yield to Maturity?
Unlike equities that have no maturity, bonds have a fixed maturity; the return to that date can be measured using current prices. Yield to Maturity (YTM) is the discount rate that equates the present value of a bond's cash flows with its market price (including accrued interest). The weighted average includes all of the underlying holdings in the portfolio.
What is the Fixed Income Weighted Average Duration?
Duration measures the approximate sensitivity of a bond's price to a change in interest rates, where bond prices are inversely related to interest rates. A duration of 3, for example, means that the price of the bond would increase by approximately 3% if the interest rate decreased by 1%. The weighted average includes all of the underlying holdings in the portfolio.
ETF: exchange-traded fund.
ETF Summary Document: summarizes certain features of the ETF such as performance and total cost. All purchasers of an ETF will receive this publicly available document.
NAV: in relation to a particular BMO ETF, the total assets of the BMO ETF less the value of the total liabilities of the BMO ETF, as at a specific date.
NAV per Unit: in relation to a particular BMO ETF, the net asset value per unit, calculated by dividing the NAV of the BMO ETF by the total number of units outstanding.
Trading Day: for each BMO ETF, a day on which: (i) a session of the TSX is held; (ii) the primary market or exchange for the majority of the securities held by the BMO ETF is open for trading.
TSX: The Toronto Stock Exchange.
Year to Date (YTD) Return: as at a specific date during a calendar year, the rate of return beginning January 1st of that calendar year to the specific date.