A mutual fund is a pool of investments managed by a professional portfolio manager. The portfolio manager invests the money on behalf of a group of investors who have similar investment goals. The fund’s goals are outlined in the fund objectives and how the portfolio manager invests the money to meet the fund’s objective are outlined in the fund’s strategies.
Depending on the fund’s investment objective, a mutual fund can invest in stocks, bonds, cash, or other mutual funds or exchange traded funds. BMO Mutual Funds are further categorized as SecurityA category of BMO Mutual Funds that help you preserve wealth, while providing a modest level of income. They offer safety of principal, regular income payments and easy access to money should you need it. Money market funds are typical security funds. , IncomeA 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. , GrowthA category of BMO Mutual Funds, these funds provide potential for higher long-term returns, often by investing in stocks. They range from relatively conservative equity funds that specialize in high quality Canadian "blue chip" stocks to funds that invest in major global stock markets. It's important to remember that higher growth potential may entail greater risk., Equity GrowthA 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., U.S. Dollar FundsA category of BMO Mutual Funds. These funds invest in U.S. dollars and provide your portfolio with diversified currency exposure. and Managed SolutionsAn investment solution that wraps a mix of underlying mutual funds and/or ETFs into a single portfolio..
Mutual Funds provide many benefits, including professional money management and diversification with broad investment options across sectors, asset classes and geographies. They are easy to buy and are also available with low minimum initial investment amounts.
Discover the range of Mutual Fund strategies available to you.
Building a Financial Plan
The best approach to achieve your specific investment goals is to build a financial plan. Depending on your personal investment knowledge, it may be a good idea to seek advice from an investment professional. An investment professional will help you to build your personalized, tailored plan and monitor it with you on an on-going basis. Some of the things you will need to think about are what you are saving for, how long you plan to stay invested and your risk tolerance.
A plan will help you stay invested and stay focused on your long term goals. See Saving for Retirement and Saving for Education for specific investment strategies related to these goals.
Risk Reward Trade-Off
In selecting the mutual funds that best meets your individual needs, you will need to consider the trade-off between risk and returns.
The value of a mutual fund can go up or down. Mutual funds are affected by things like changes in interest rates, economic conditions in Canada or around the world or news about companies the fund invests in. How big the fund’s value changes are is a measure of risk. This is called volatility.
Investments that have the highest return potential fluctuate more with the market in the short term and have a greater possibility of gaining value over the long term.
Diversification is an important investment strategy to help reduce volatility and manage risk.
Prospectus and Fund Facts
Every mutual fund company must publish and file with the regulators on an annual basis a simplified prospectus and fund facts for each fund and series it offers for sale. The prospectus and fund facts contain a lot of relevant information on the funds you hold. See below for more information of what is contained within a sample prospectus product page and a sample fund facts.
As a result of recent regulatory changes implemented in 2014, the prospectus is no longer delivered to investors at the point of sale, unless specifically requested by the investor. The fund facts document is now mailed to investors after the sales process is completed.
The most recent versions of these documents are always available on our website in the Legal and Regulatory Section.
Mutual Fund Fees
Mutual funds have associated fees. The cost of owning a mutual fund is called the Management Expense Ratio (MER). The MER is an annual fee that is charged by the fund to pay for the costs of running the fund and includes the management fees and operating expenses. The management fees and operating expenses are also subject to applicable taxes. The MER varies by fund and by series. Learn More
The fund may also be subject to a 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 funds with foreign securities will typically have a higher TER.
The MER and TER for each series can be found on the most recently filed fund facts.
Sales or Redemptions Charges
In addition to the MER, certain series of funds may have sales or redemptions charges. Advisor Series, Series T5, Load Series T6, and Series T8 may also have a sales charge or redemption fee. Each of these series is offered in a front-end, deferred sales charge or low load sales charge option.
You may pay an up-front fee, negotiated between you and your dealer at the time of purchase, if you buy the front-end sales charge option of any of the above series. You will pay a redemption fee if you sell your investment within a certain time period if you buy the deferred or low load sales charge options.
Refer to the FAQ for more information: What costs are associated with mutual funds?
How do investors make money from a mutual fund?
Investors in a mutual fund can make money from:
- Income distributions – a fund can earn income such as interest and dividends, and from time to time distribute that income to investors.
- Capital gains distributions – a fund will realize capital gains when it sells an investment for more than its cost. A fund can also realize a capital loss if it sells an investment for less than its cost. Each year, a fund will distribute its net realized capital gains to investors.
- Capital growth – the value of an investment in a fund will rise when the value of the fund’s investments rises, even if the fund has not sold the investments.
If you hold your mutual funds in a registered plan, distributions can only be reinvested in additional securities. If you hold your mutual funds in a non-registered account, distributions will normally be reinvested in additional securities, but you have the option to request to receive distributions in cash.
Taxes and your Mutual Funds
In general, you’ll have to pay tax on any money you make on a fund. How much you pay depends on the tax laws where you live and whether or not you hold the fund in a registered plan such as a Registered Retirement Savings Plan or a Tax-Free Savings Account.
If you hold your mutual funds in a registered plan, generally, neither you nor your registered plan is subject to tax on distributions paid by the mutual fund or on capital gains realized when the mutual funds are redeemed or switched. If you hold your mutual funds in a Tax Free Savings Account (TFSA), your investment will grow tax free and you can withdrawal your money tax free. See Account Types for more information.
If you hold your mutual funds in a non-registered account, distributions will be subject to tax whether they are received in cash or reinvested in additional securities. The amount of tax you pay depends on the type of distribution and your marginal tax rate. If your mutual fund increases in value, then you will be required to pay tax on the gain when you sell the fund.