Index Funds in Canada: What They Are and How to Invest in Them

An index fund is a fund built to follow a market index, such as the S&P/TSX Composite, rather than to pick the investments it expects to do best. Because its manager has less research to do and fewer decisions to make, an index fund tends to cost less than an actively managed one. In Canada an index fund is generally sold in one of two forms, a mutual fund or an exchange-traded fund (ETF). That gives three ways in: an index mutual fund from a bank or fund company, index ETFs bought in your own brokerage account, or a robo-advisor that manages a portfolio of ETFs or low-cost mutual funds for you. This page explains how index funds work and how those routes compare; the funds themselves are listed on our ETF comparison pages.

What is an index fund?

An index is a group of investments picked to stand for one part of the market, for example Canadian stocks, large US companies or Canadian bonds. Many index providers publish on their websites how their indexes are put together. An index fund holds what its index holds, so its value goes up and down with the index. Some funds own every security in the index; others own a sample picked to behave like it.

The Nova Scotia Securities Commission puts it simply: an index fund “doesn’t try to beat the market, instead it tries to follow the market”. So “index fund” names a strategy, not a type of product. That strategy can sit inside a mutual fund or inside an ETF.

A few index funds do something else: they aim for two times the index’s return, or the reverse of it. Their prospectuses generally warn that they may not suit long-term investing. This page doesn’t cover them.

Why are index funds low cost, and do they beat active funds?

An index fund is passive: it tries to match the market’s average return instead of beating it. The manager of an active fund trades more often, aiming to do better than the market. With less research and fewer decisions, a passive fund generally costs less to run. That cost comes out of the fund each year as its management expense ratio (MER), and investors pay it even in years when the fund loses money. Our MER calculator shows what it adds up to over time.

Lower costs are a large part of why passive funds can come out ahead of active ones once fees are counted, according to Ontario’s securities regulator. One Canadian measure is S&P Dow Jones Indices’ SPIVA Canada scorecard, which compares Canadian actively managed funds with the benchmark for each fund’s category. In the SPIVA Canada Year-End 2025 scorecard, these are the shares of active funds that did worse than their benchmark over the 10 years to the end of 2025:

Each figure in the table is above half, so in each of these categories most active funds trailed their benchmark over that period. Three details help in reading the figures. The fund returns are after fees. Funds that closed or merged along the way still count, so the poor performers don’t drop out of the results. And an index’s own return has no costs taken off, while an index fund pays fees, so an index fund also lands a little behind its index. Past results don’t predict what the next ten years will bring.

Index fund or ETF: what’s the difference?

They aren’t opposites. “Index fund” is the strategy, and “ETF” is how a fund is packaged and traded. Most ETFs are built to follow an index, though many are actively managed. Mutual funds are the other way round: they’re usually actively managed, but some are index funds. So whether the question is “index fund vs ETF” or “index fund vs mutual fund”, it usually comes down to two choices: an index mutual fund or an index ETF, and index or active.

On cost, index ETFs can have lower MERs because the manager doesn’t actively manage the fund. MERs also differ between index mutual funds that follow the same market. Two banks’ index mutual funds for the Canadian stock market list MERs of 0.22% and 1.14%. One fund company’s ETF following the S&P/TSX Capped Composite lists 0.06%. With an ETF, though, small trading fees can add up quickly when you invest small amounts.

Which one suits depends on how you plan to invest. An index mutual fund works for putting set amounts in on a schedule through your bank. An index ETF works if you have, or will open, a trading account and want a lower MER. Our ETF vs mutual fund comparison covers the wider choice, including active funds and tax.

Looking for a list of index ETFs? Canadian-listed index ETFs, grouped by the market they follow, are on our Canadian ETFs page.

How do you invest in index funds in Canada?

There are three routes.

1. An index mutual fund from a bank or fund company. You buy it through a mutual fund dealer, usually your bank or the fund company. One bank’s Canadian index fund has a $100 minimum first purchase and no minimum after that. The same fund can come in several series with different MERs; mutual fund series explains why.
2. Index ETFs in a self-directed account. You open a trading account and buy the ETF on the exchange by its ticker. You’ll usually pay a commission on each trade, and the spread is a cost too. How to buy an ETF walks through placing the order, and the brokers hub compares the platforms.
3. A robo-advisor. Ontario’s securities regulator describes online advisers there as managing a portfolio for you, in most cases built from ETFs or low-cost mutual funds and rebalanced from time to time, for a fee that is generally a percentage of the portfolio’s value. See robo-advisors in Canada.

The steps:

1. Pick the account. In an RRSP you pay no tax until you take money out, and in a TFSA you won’t pay tax while the money is in the plan or when you take it out. Our TFSA and RRSP guides cover the rules.
2. Open the account with the bank, brokerage or robo-advisor and put money in.
3. Choose the fund, or the mix of funds, by the market it follows and what it costs (see how to choose).
4. Decide whether to add money on a schedule: a mutual fund account can do this, and many discount brokerage accounts can’t for ETFs.

After you buy a mutual fund, you can generally cancel the order within 48 hours of receiving its confirmation, though the rules vary in some provinces. See buying mutual funds.

Which indexes do Canadian index funds track?

• The Canadian stock market. “The market” in Canadian news usually means the S&P/TSX Composite, which Ontario’s regulator describes as the Canadian stock market. Some index funds track a different broad Canadian market index, such as one calculated by Solactive. Canadian index ETFs are on our Canadian ETFs page.
• US stocks. The S&P 500 holds 500 large companies. Some funds follow a total US market index instead. See S&P 500 ETFs.
• International stocks. International index funds follow indexes such as MSCI EAFE or MSCI Emerging Markets, and some follow a single country or region.
• Bonds. Bond index funds follow indexes made up of bonds. See bond ETFs.
• Several at once. One fund company says its all-in-one ETFs hold several ETFs to give a mix of global stocks and bonds in a single fund. See all-in-one ETFs. To build the mix yourself, see the Couch Potato portfolio.

How do you choose an index fund?

Choosing comes down to which market you want and what you’ll pay to hold it. Things to compare:

• The index. It decides what the fund holds and how much of each, and two indexes with the same investments in different proportions give different returns.
• The total cost. The MER, plus commissions and the spread for an ETF, or the adviser’s fee with a robo-advisor.
• The route. An index mutual fund or an index ETF, from the comparison above.
• Tracking. A fund’s return won’t exactly match its index’s. Fees and expenses pull it down, the fund’s holdings may not be weighted quite like the index, and demand can push an ETF’s price away from the index for a while, which is called tracking error. Comparing a fund’s returns with its benchmark’s shows how closely it keeps up.
• Currency and foreign tax, for funds that hold US or international stocks: see US-listed vs Canadian-listed ETFs.
• One fund or several. An all-in-one fund can stand in for several single-market funds.

Mutual fund companies have to give investors a Fund Facts document; how to compare funds explains what to read in it and in an ETF’s ETF Facts. The funds themselves, side by side, are on our Canadian ETFs and S&P 500 ETFs pages, and the single-fund portfolios on the asset allocation ETF page.

What can go wrong?

An index fund carries the risks of what its index holds: a stock index fund behaves like stocks and a bond index fund like bonds. If the market goes down, the fund goes down with it, and it isn’t guaranteed to make or return money. Because it copies its index, the fund has less room to respond to market swings by changing what it holds. Mutual funds and ETFs aren’t covered by CDIC deposit insurance.

Where to go next

• What an ETF is and how to buy one
• ETF vs mutual fund
• All-in-one ETFs
• Online brokers and robo-advisors