There are more than 4,500 mutual funds in Canada as of today. As comparison, there are only about 2,200 stocks listed in Toronto Stock Exchange. In other words, the number of mutual funds is two times more than the number of stocks. Just for your information, we got those numbers from The Globe and Mail stocks and fund filters.
How about us? Are we still investing in mutual funds? If yes, how do we select which mutual funds to choose from?
First of all, we still have some investment in mutual funds. Some of you may be asking why? Canada has been rated as one of countries with high mutual funds fee in the world. There are two main reasons why we are still investing in mutual funds:
- There is no commission for buying or selling mutual funds in most brokers. On the other hand, most Canadian brokers (if not all) still charge money for ETF transactions.
- It is easier to apply dollar-cost averaging strategy. Again, this is related to the first reason. Since there is no fee involved for mutual fund transaction, we can setup automatic contribution without additional cost.
Now for the second question, how do we choose good mutual funds? We usually use funds filter from The Globe and Mail. Then we use the following criteria:
- Total assets > $25M. It is just for a peace of mind that the fund has some amounts of money. We don’t want to invest in a fund that has to be liquidated next month or next year.
- Minimum investment < $5,000. We are currently still managing a small amount of money; so we have to find funds that don’t require a huge amount of money, like minimum $25,000 to invest.
- MER < 1.5%. This is the most important one. Management expense ratio has to be less than 1.5%. Ideally, we want to put < 1.0% here. Unfortunately, we will miss some of “good” Canadian mutual funds if we do that.
- Load type = No Load. This is another important criteria. We don’t want to pay money to buy or sell mutual funds.
- Fund type = Open-Ended. Since we are not looking for insurance-type mutual funds (a.k.a. segregated mutual funds) or pooled mutual funds; then we just enter open-ended mutual funds here.
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