The Best Mutual Funds to Invest in Canada

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Alexandre Desoutter updated on 30 March 2023

In 2019 the Investment Funds Institute of Canada (IFIC) estimated that there were more than $1.7 trillion invested in mutual funds in Canada, distributed over at least 4,000 different funds.

Often ETFs are touted as the better investment option but despite the rise in demand for low-cost ETFs, mutual funds have remained a leading investment vehicle in Canada for long-term investors entrusting their futures in the hands of professionals.

This article covers the basics of mutual funds, how they work, how to pick the best ones, and other frequently asked questions surrounding mutual fund investments.

What is a mutual fund?

Mutual funds are investment vehicles that pool money from hundreds or thousands of investors to invest in a basket of securities. Mutual funds can consist of any asset class and are managed by professional fund managers who work for asset management companies. The fund managers allocate the fund’s assets into various securities in order to achieve a good return on behalf of their investors, often trying to beat the market.

Investments within a mutual fund are dictated by specific objectives so that investors will always know what they are investing in. For example, Scotiabank has several different mutual funds including the Scotia Canadian Equity Index Fund, whose objective is to achieve long-term growth by tracking the performance of a recognized Canadian equity index. As such, the investor will know that this mutual fund currently only invests in equity class securities listed within the S&P/TSX Composite Index.

When you're ready to invest in a mutual fund it's easy to do! If you're hands-on you can invest directly through a brokerage or a robo-advisor, but if you need some assistance, a financial advisor can help steer you towards the best funds for you.

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How does a mutual fund work?

Mutual funds work by pooling the money from thousands of individuals into one big pot managed by an asset management company (AMC). The AMC in charge of the mutual funds then appoints asset managers to manage the money by investing in a basket of securities based on the fund's objectives. Well-known AMCs in Canada include:

  • BMO mutual funds
  • CIBC mutual funds
  • Fidelity mutual funds
  • HSBC mutual funds
  • Invesco mutual funds
  • Manulife mutual funds
  • National Bank mutual funds
  • RBC mutual funds
  • Scotiabank mutual
  • Sun Life mutual funds
  • TD mutual funds

All of these companies run several mutual funds. The investments within the mutual fund are then placed in accordance with the fund’s objectives and are overseen by a named trustee to ensure that the investor’s interests are protected.

Once invested in a mutual fund, the investor receives units, or shares, which are redeemable if the investor wants to sell their investment. This unit is often mentioned alongside the mutual fund’s NAV, which shows the value of 1 unit less any fund costs. It is, therefore, easy for investors to check the market value of their investment by simply multiplying the number of units they hold with the current NAV.

What is NAV in a mutual fund?

The NAV in a mutual fund stands for Net Asset Value. It represents the value of 1 unit of your investment after all fund expenses and management fees are paid. The NAV is therefore the price that investors pay per share when investing in a mutual fund, as well as the redemption price when selling their units. By multiplying the number of their units with the NAV, an investor can determine the current market value of their investment in a mutual fund.

How to choose a mutual fund?

When choosing a mutual fund you need to at the very least compare management fees, fund management styles and returns. By reviewing these criteria you can see how mutual funds within the same sector compare and if they should be included in your portfolio.

A mutual fund’s returns show the fund’s performance since its inception and are often broken down into months, year to date and years. Funds will also include a fixed benchmark related to their objective so that you can judge their performance to the market standard. By comparing returns between different mutual funds you can also see if one fund is managed better than another.

Fund management style helps you choose a mutual fund since the management style determines how the basket of securities is selected. For example, growth managers look to invest in companies with high growth potential, while value managers invest in undervalued companies.

How do mutual fund fees work?

Mutual fund fees work differently depending on the type of fee charged. The main two costs are ongoing operating fees and shareholder fees. Both fees are usually paid by the investor with the ongoing fees paying for the administration of the fund and shareholder fees covering transaction costs.

Shareholder fees are linked to investors’ transactions when buying, selling and exchanging mutual fund shares. These mutual fund fees work by paying sales commissions to brokerages and financial advisors, as well as covering other one-time costs. Shareholder fees include:

  • Sales Loads
  • Purchase fees
  • Exchange fees
  • Redemption fees
  • Account fees

Ongoing operating fees on the other hand are incredibly common and are associated with all mutual funds. These fees fall under the management expense ratio.

Good to know

Sales loads are the commissions paid to financial advisors and can be expensive. When purchasing mutual funds through an advisor, always ask for a full breakdown of all charges.

How to invest in mutual funds in Canada?

To invest in mutual funds in Canada all you need is access to a trading platform through an online brokerage, a bank or use an established financial advisor. It is also possible to buy mutual funds on autopilot by using the services of a company such as Wealthsimple, or you can actively manage your mutual fund portfolio to avoid excess fees.

Before you start investing in mutual funds you have to:

  1. Identify which mutual funds you want to invest in
  2. Pick the right investment provider, online brokerage, bank or robo-advisor
  3. Review and compare all fees
  4. Continuously review, rebalance and increase your investments

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What is MER in mutual funds?

The MER in a mutual fund stands for management expense ratio and it is a fund’s annual operating expense charged to investors. The expense ratio pays the fund managers and covers other administrative costs such as accounting, legal fees and marketing.

A good MER for a mutual fund is anywhere between 0.25% to 1%, although they can go up to 3%. While it is good practice to review MER fees between mutual funds to ensure that you keep costs to a minimum, MERs in mutual funds can’t be avoided. Therefore, it is important to compare two different mutual funds with the same objectives to see if one mutual fund’s returns justify a higher management expense ratio.

Good to know

Small differences in MER percentage fees can add up to substantial differences in your investment returns over time. The lower the MER, the better.

What are the different types of mutual funds?

There are thousands of mutual funds on the Canadian market including equity funds, bond funds, industry and region-specific funds, diversified funds and balanced funds. When comparing different types of mutual funds you want to ensure that the mutual funds you pick align with your investment goals.

  • Equity funds invest primarily in stocks and can be actively or passively managed.
  • Bond funds are mutual funds that invest primarily in corporate or government bonds and are often broken down into either short-term or long-term bond funds.
  • Industry/Sector funds are mutual funds that focus on specific industries or sectors of a market.
  • Regional funds invest in securities based on geographical location.
  • Diversified mutual funds invest across a range of geographical regions, industries and assets.
  • Balanced mutual funds are usually less aggressive and invest money in several asset classes, often mixing stocks and bonds.

What are the best mutual funds in Canada?

The best mutual funds in Canada vary depending on the needs of the investor and the type of mutual fund. Whether an investor is looking to invest in companies with growth potential or fixed income, the list of the best mutual funds varies. Below is a list of a few of the top mutual funds in Canada offered by RBC, CIBC, Scotiabank and TD bank based on cost, size and returns.

RBC mutual funds

Fund nameAssets under management (CAD)MERReturns since inceptionRisk levelMain asset class
RBC Select Balanced Portfolio
$50,517.61M0.97%6.5%Low to MediumEquity, Bonds
RBC Bond Fund
RBC Canadian Dividend Fund
RBC mutual funds comparison

CIBC mutual funds

Fund nameAssets under management (CAD)MERReturns since inceptionRisk levelMain asset class
CIBC Balanced Fund
$337.84M2.27%5.8%Low to MediumEquity, Bonds
CIBC Dividend Income Fund
$371.41M2.02%5%Low to MediumEquity, Bonds
RBC Canadian Dividend Fund
CIBC mutual funds comparison

Scotiabank mutual funds

Fund nameAssets under management (CAD)MERReturns since inceptionRisk levelMain asset class
Scotia Global Balanced Fund
$107.81M2.01%6.32%MediumEquity, Bonds, Cash
Scotia Canadian Bond Fund
$77.05M1.29%2.66%Low to MediumBonds
Scotia Canadian Dividend Fund
Scotiabank mutual funds comparison

Toronto-Dominion TD Bank mutual funds

Fund nameAssets under management (CAD)MERReturns since inceptionRisk levelMain asset class
TD Balanced Growth Fund
$936.55M2.22%6.66%Low to MediumEquity, Bonds
TD Canadian Bond Fund
TD Canadian Equity Fund
TD mutual funds comparison

If you want to connect with a financial advisor for personalized advice, you can!

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ETFs vs Mutual Funds

A common debate emerging when searching for alternatives to mutual funds is the ETFs vs mutual funds debate. This discussion is fueled by the recent increase in DIY and retail investors who are looking for low-cost investment alternatives to mutual funds, and believe that the latter is too expensive. While some arguments for ETFs hold merit, investing is never black and white. 

Key differences between mutual funds and ETFs are listed below and provide some indication of when you should invest in either.

Why invest in mutual funds?

  • Easy diversification
  • Ample variety
  • Actively managed funds
  • Invest through big banks
  • Investment support
  • Automated investment opportunities

Why invest in ETFs?

  • Hands-on investment approach
  • Avoid fees at all cost
  • Passive index tracker style funds
  • Trading flexibility

Hedge funds vs mutual funds

Hedge funds and mutual funds are both investment vehicles that pool investors' money and invest them in a basket of securities. However, while mutual funds are available to the public and readily traded, hedge funds are private investment products that are only available to high-net-worth individuals.

Another big difference between hedge funds and mutual funds is the cost. Mutual fund costs are limited to shareholder fees and the MER. Hedge funds on the other hand usually charge an MER in addition to a 20% performance fee on the fund’s profits.

So, hedge funds vs mutual funds? Unless you are a high-risk, high-net-worth individual, mutual funds are more suitable for you.

Segregated funds vs mutual funds

Segregated funds are a common investment product offered in Canada and used by Canadian insurance companies. Similar to mutual funds, they pool together the money from investors in order to invest in a range of securities. However, there are some very important differences between segregated funds and mutual funds.

While segregated funds have the potential growth of a mutual fund, the insurance contract aspect guarantees the investor the principal at either maturity or death. This is known as the maturity and death guarantee and has been designed to protect your assets from volatility.

The downside, however, is that a segregated fund needs to be held until contract maturity or face considerable redemption fees, while mutual funds can be traded daily.

Mutual funds vs stocks

Investing in mutual funds is fundamentally different from investing in singular stocks because mutual funds can consist of tens, hundreds or thousands of different securities from various asset classes and regions. As such, mutual funds offer instant diversification and less risk compared to single-stock investments.

Differences between mutual funds and stocks

AboutMutual FundsStocks
Financial knowledge required
Volatility & Risk
Low to mediumHigh
High feesLimited to no fees
Mutual funds vs stocks

Mutual funds vs GIC

The main difference between a mutual fund and a Guaranteed Investment Certificate (GIC) is that the GIC offers a guaranteed rate of return between 1-3% over a fixed period, while the mutual fund returns vary depending on market performance. Since the GIC is guaranteed, it is an extremely low-risk investment suitable for retirees or those nearing retirement.

When choosing between mutual funds and GICs, you need to consider the possibility of returns, liquidity and investment risk. The GIC is a great investment vehicle if you need to secure your initial investment and can live off the fixed guaranteed income provided, but if you are able to take on higher risk and invest for a longer time in order to achieve greater results, then mutual funds are the better option.

Are you ready to start investing in mutual funds? Maybe you still have some questions or are interested in a different investment vehicle. A financial advisor can help guide you toward the best investments for you.

Start working with a financial advisor today

Speak with an expert now
Contracts for difference (CFDs) are complex instruments. The nature of leverage means that they are high-risk investments with the potential to lose money quickly.
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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.