Mutual Funds in Canada: How They Work, What They Cost and How to Compare Them

A mutual fund pools money from many investors, and a professional manager invests it in stocks, bonds or other funds. You own units of the fund, bought and sold at a price called the net asset value, which is usually worked out once each business day. You pay for the fund mainly through its management expense ratio (MER), which comes out of the fund’s assets, and sometimes through a sales charge when you buy. A conventional mutual fund comes with a Fund Facts document, which you must receive before or when you buy; it sets out the fund’s performance, risks and costs for your series. This page names no funds and ranks none: it explains how they work and what to check.

On this page: How it works · Kinds of funds · How to buy · Costs · Trailing commissions · Series · How to compare funds · Mutual fund or ETF · Risks

What is a mutual fund, and how does it work?

When you invest in a mutual fund, your money joins other investors’ money in one pool, and you receive units (or shares) of the fund. Canada’s securities regulators, through the Canadian Securities Administrators (CSA), call mutual funds “open-ended”: as more people put money in, the fund creates new units for them. What the fund buys is set by its investment objective, and a portfolio manager makes the day-to-day decisions about what to buy and sell to meet it.

How a unit is priced. A unit’s price is the fund’s net asset value (NAV): what the fund’s investments are worth, less what it owes, divided among the units. Whether you buy, sell or switch, you deal at the NAV, and the NAV is generally calculated once each business day, so unlike a stock, a fund’s price doesn’t move during the day. When you sell, the price you get is the one worked out at the end of that business day, so the value you see during the day is an estimate.

How you make money. The fund may pass on the interest, dividends and capital gains it earns as distributions. Unless you ask for cash, a fund will usually reinvest them in more units for you. You also have a capital gain if you sell your units for more than you paid.

Active or index. In an actively managed fund, the manager buys and sells to try to beat the market or a chosen benchmark; an index fund holds a portfolio built to track an index instead. Index funds usually cost less because the manager has less research and fewer decisions to make. Index funds covers them in full.

What kinds of mutual funds are there?

The Ontario Securities Commission’s investor site lists these kinds of mutual fund:

• Money market funds hold short-term debt; they are generally safer than other kinds of mutual fund, with a lower potential return.
• Fixed income (bond) funds aim for a steady flow of money into the fund, mostly from the interest their bonds pay.
• Equity funds hold stocks and aim to grow faster than money market or bond funds, which usually means a higher chance of losing money.
• Balanced funds mix stocks and bonds, usually by a set formula, and tend to sit between bond funds and equity funds on risk.
• Index funds rise and fall with the index they track.
• Specialty funds follow a narrow mandate, such as real estate, commodities or ESG investing.
• Fund-of-funds hold other funds, and their MERs tend to be higher than those of stand-alone funds.

GIC vs mutual funds compares a low-risk fund with a guaranteed deposit.

How do you buy a mutual fund in Canada?

You can buy through a financial advisor or straight from a mutual fund dealer, and the Ontario Securities Commission’s advice is to deal only with registered firms and individuals. By law, people who sell mutual funds, stocks and bonds must complete training and register with a provincial or territorial securities regulator; the National Registration Search shows whether an advisor is registered, and the FCAC suggests asking whether any restrictions, terms or conditions have been placed on that registration. The fee-only financial advisor page explains how advisors are registered and paid.

There are two broad routes:

• With advice. An advisor helps you pick the kinds of fund that fit you, and the application may ask how much risk you can live with and how well you know investing. The advisor’s firm is usually paid through the fund’s trailing commission, or through a fee you pay directly in a fee-based account.
• Without advice. An online (discount) brokerage lets you choose the funds yourself; self-directed accounts can’t hold fund series that pay a trailing commission, so they offer series without one.

A robo-advisor is a third option: an online adviser manages a portfolio for you and rebalances it from time to time.

Each fund sets its own minimum investment, which its Fund Facts document lists. Once you’ve bought, the order can still be cancelled for a short time:

• You can generally cancel the purchase within 48 hours after you receive the order confirmation.
• The rules vary in some provinces.

You can hold mutual funds in a registered plan such as an RRSP. For income inside a TFSA or RRSP: Interest, dividends and capital gains earned in a TFSA are generally tax-free, even when you withdraw them. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan, and you generally pay tax when you receive payments from it. The dividend vs capital gains tax page has the rule in full.

What does a mutual fund cost?

Some costs you may pay directly, such as a sales charge when you buy or sell; the fund’s own expenses come out of its assets before its returns are published.

The MER. A fund’s management fee and its operating expenses together make up its management expense ratio, stated as a yearly percentage of the fund’s value. The Ontario Securities Commission puts the range at less than 1% to more than 3%. You never see a bill, but the MER lowers the fund’s returns, and it is charged whether the fund does well or not. The fund’s trading costs are reported separately as the trading expense ratio (TER).

Trailing commissions

Most fund companies pay a trailing commission, or trailer fee, every year to the firm of the advisor who sold you the fund, for as long as you hold it, at a rate the fund company sets. It comes out of the management fee, so it is already inside the MER, and it typically runs from 0.25% to 1.50% of your investment a year. It pays for the advisor’s services and advice, and the firm may pass some or all of it to the advisor.

Since June 1, 2022, two changes apply:

• Discount brokers, which don’t give advice, can no longer receive trailing commissions, so funds that pay them can’t be sold to self-directed investors. The Ontario Securities Commission lists what happened to holdings they already had: a switch to a series of the same fund without a trailer, with a management fee lower by the amount of the trailer; a management fee rebate equal to the trailer, from some fund companies; or, where neither was available, a rebate of the trailer from the discount broker (a dealer rebate).
• Funds can no longer be sold under a deferred sales charge, and the low-load variant went with it. Fund companies can no longer pay dealers an upfront commission when they sell a fund.

Sales charges. Some funds charge a fee when you buy or sell, known as a load:

• Front-end load: a percentage of what you invest, up to 5%, paid to the firm that sells you the fund and open to negotiation with your advisor.
• Deferred sales charge (back-end load): no new purchases since the ban, but units bought before it still follow their redemption fee schedule, so selling before it runs out costs a fee.
• No load: no fee to buy or sell, though the Ontario Securities Commission notes that isn’t always the better deal once the MER and returns are compared.

In a fee-based account you pay no sales charges and instead pay your advisor a yearly fee, typically negotiated between 1% and 2%. Other fees can apply: a switch fee when you move between funds in the same family, and a short-term trading fee if you sell soon after buying (for example, within 30 days).

Why does one fund have several MERs?

Fund companies sell the same fund in several series (or classes), each built for a different kind of investor or a different way of paying the advisor, so each has its own fees and its own returns. There is no standard for the letters, but the Ontario Securities Commission describes the common ones:

• Series A (retail): sold with advice; the advisor’s firm is paid trailing commissions.
• Series D (discount): for do-it-yourself investors at a discount brokerage, generally with a lower management fee than Series A.
• Series F (fee-based): you pay your advisor’s negotiated fee directly, so there is generally no trailer and a lower management fee.
• Series I (institutional): high minimums, aimed at institutions such as pension plans or large investors.

One fund company’s Canadian equity fund shows the gap: the same portfolio has an MER of 1.87% in Series A and 1.04% in Series D, in Fund Facts dated June 30, 2026. The MER calculator shows what a gap like that costs over the years.

How do you compare mutual funds?

This page doesn’t rank funds. The Fund Facts document must be given to you before or when you buy, and it is written for the series you are being offered. You can also get it from the fund company’s website or the regulators’ filing system, SEDAR. Read these parts:

1. What the fund holds. Its ten largest investments and its overall mix, by industry, asset class or region.
2. The risk rating. One of five levels, from Low through Low to Medium, Medium and Medium to High to High, set by the fund manager from how much the fund’s returns have varied (its volatility). It doesn’t show how much the fund lost in a downturn or how long it took to recover, and it isn’t a measure of whether the fund suits you.
3. Past performance. Returns year by year for up to ten years, after the fund’s expenses, plus its best and worst three-month periods.
4. Costs. The MER (which includes any trailing commission), the TER and other fees, all for that series.
5. Sales charges and short-term fees. What you pay to buy, sell or switch.

Compare a fund’s returns with a benchmark that holds similar investments: for a fund of Canadian stocks, that might be the S&P/TSX Composite Index. A fund that did well last year may not do so again: past performance can’t tell you how a fund will perform. The Canadian Securities Administrators note that some studies show most mutual funds are unlikely to beat their benchmark consistently over the long run. In the SPIVA Canada Year-End 2025 scorecard, 98.82% of actively managed Canadian equity funds trailed their benchmark over 10 years. Index funds covers what that means for active and index funds.

Mutual fund or ETF?

An exchange-traded fund (ETF) also pools investors’ money in a portfolio, but it trades on a stock exchange through the day at its market price, usually with a commission each time you buy or sell, while a mutual fund’s price is set once a day. The ETF vs mutual fund comparison covers the differences in fees, tax and switching from one to the other.

What are the risks?

Like any investment, a mutual fund can lose money, and its value moves with the value of what it holds. Fees reduce your returns whether the fund rises or falls. A fund’s assets are held separately by a third party, a custodian.

Mutual funds aren’t covered by the Canada Deposit Insurance Corporation; the CDIC page lists what is. If an investment dealer or mutual fund dealer that is a CIPF member becomes insolvent, CIPF gives limited protection for the property it held for you, not for investment losses. The brokers hub explains how that works.

Outside a registered account, distributions are taxable in the year you receive them, whether in cash or reinvested. The T3 slip page explains how they are reported.

Where to go next

• MER calculator: what a fund’s fees cost over time.
• ETF vs mutual fund: whether to switch, and what it changes.
• Index funds in Canada: index mutual funds and index ETFs.
• Couch Potato portfolio and all-in-one ETFs: low-cost ways to build a portfolio.
• ETFs and index funds: the hub front page.