» What is a mutual fund?
 » Why do people buy mutual funds?
 » What types of funds are available?
 » Who should buy mutual funds?
 » What is dollar cost averaging?
 » What is a load?
 » What kind of risk is involved with mutual funds?
 » Are mutual funds insured?
 » What about taxes?
 » How do I get started?

What is a mutual fund?

A mutual fund is an investment that pools money from many individuals and invests it according to stated objectives. Professional managers make investment decisions on behalf of fund investors, buying and selling investments such as money market investments, bonds, and stocks. When you purchase units of a mutual fund, you become a part owner of all the investments held by that fund.

Why do people buy mutual funds?

For the average investor, mutual funds are a convenient and affordable way of gaining access to investments that would otherwise be available only to large institutions or the wealthy. These investments are selected by experienced professionals who devote themselves exclusively to tracking the markets, analyzing investments, and implementing a consistent investment strategy.

What types of funds are available?

There are a variety of mutual fund categories. Each offers a range of funds suitable for every type of investor, from the most conservative to the most aggressive.

• Money market funds provide a reasonably secure and flexible way to invest for short-and long-term goals. They earn interest income. Since many investors pool their money in a money market fund, the fund manager is able to purchase investments with higher yields than would be possible for an individual investor.
• Income funds provide you with regular income and the potential for modest long-term growth.
• Balanced mutual funds hold a mix of stocks, bonds, and money market investments. Different economic factors affect investment markets in different ways. The key goal of this type of fund is to offer an investor an appropriate level of diversification given market conditions. These funds offer the potential for income, dividends, and long-term growth.
• Canadian growth funds offer a convenient and effective way to invest in a diversified portfolio of Canadian securities.
• International growth funds give you the opportunity to diversify your portfolio internationally to capitalize on the growth potential in other countries. Within this category, you have the option of investing in the U.S. market or in other international markets.

Who should buy mutual funds?

Mutual funds have a place in almost anyone's portfolio. They offer a range of investment objectives that can satisfy a variety of investment needs. Depending on your financial circumstances and tolerance for risk, there are a variety of choices that are right for you.

What is dollar cost averaging?

If you find saving money next to impossible, you are not alone. Many Canadians find that the biggest obstacle to meeting their goals is putting money aside after their living expenses. Dollar cost averaging is an excellent way to save and to minimize volatility risk and maximize returns. By purchasing the same dollar amount on a regular basis, you buy more units when prices are low and fewer units when prices are high. The result is a lower average cost per unit over time.

What is a load?

A load is a sales commission charged when you buy or sell certain mutual funds that are distributed through stockbrokers or financial planners.

• Front-end load refers to a charge when you purchase your units. Front-end loads are often negotiable and average around 4%.
• Back-end load refers to a charge when you sell your units. Back-end loads start around 6% and decline to zero if you hold your units for a number of years.
• No-load funds are sold directly to investors with no sales commissions charged. These funds are often sponsored by banks and trust companies.

What kind of risk is involved with mutual funds?

In investing, the element of risk can vary substantially. A general rule is that the higher the potential return, the higher the risk. A fund that aims to achieve a high level of growth will be more volatile than one whose objective is to preserve the original capital. On the other hand, a growth fund will likely earn a higher return over the long term than a money market fund.

Are mutual funds insured?

Since mutual funds qualify as securities and not deposits, they are neither guaranteed nor insured. However, fund managers and the funds themselves operate under strict securities regulations. Canadian securities regulations require that the assets of a mutual fund (its investment) must be held in trust by a Canadian financial institution, which serves as trustee. This means that the fund manager does not actually own or have access to the mutual fund assets. As well, all fund assets must be kept separate from the trustee's other assets at all times, which means that the mutual fund is not affected by the trustee's financial situation. These regulations are strictly enforced and regularly audited, helping to protect your investment.

However, this does not mean that the value of your mutual fund investment will not fluctuate. Investment markets go up and down. The variability of your portfolio will depend on the type of mutual funds that you hold, movements in the investment markets, and the expertise of the portfolio manager.

What about taxes?

Mutual fund units held in RRSPs are exempt from tax until withdrawn. Outside an RRSP, all investment income is subject to income tax at your marginal rate. Not all investment income is taxed equally. By choosing your investment carefully, you might pay less tax. Income received from your mutual fund investments can be in the form of interest, dividends, capital gains, or a combination of the three. Capital gains earned by your mutual funds are reported to you on your T3 slip.

How do I get started?

To invest in mutual funds or to review your investment needs and goals, call or visit your nearest Envision Credit Union branch and speak to a Credential® Investment Professional.

Included among the offerings of mutual funds are the Ethical Funds®, and the Credential® Platinum List of funds. These funds are available to you at any Envision Credit Union branch.

*Mutual funds are offered through Credential Asset Management Inc. and mutual funds and other securities are offered through Credential Securities Inc.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently and past performance may not be repeated. Credential Securities Inc. is a Member-CIPF. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence. ®Ethical Funds is a registered mark owned by Northwest & Ethical Investments L.P. and is used under licence.

Privacy | Disclaimer | Site map | All contents are copyright © 2008 by Envision Financial