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Understanding Mutual Fund Facts | Your Money, Your Choices with Susan Daley - YouTube
Channel: Susan Daley
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On a previous video, âWhat fees you pay
when investing in mutual fundsâ a viewer
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asked that I create a video on how
to determine the various fees associated with
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mutual funds based on their documentation.
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If you havenât watched my previous video,
Iâd suggest you do so to give some more
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context to todayâs topic.
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The easiest way to find out the fees youâll
pay when holding a mutual fund is through
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the securityâs Fund Facts.
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The Fund Facts is a document that
every mutual fund provider must provide
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and make available for investors.
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New-ish regulations also require that advisors
provide this document to investors in advance
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of making a purchase in an account (unless
itâs a discretionary relationship).
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So in todayâs video, Iâll be outlining
the Fund Facts document
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and the relevant information included.
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Iâm Susan Daley and this is Your Money,
Your Choices.
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In my examples today, Iâll use all Canadian
equity funds, but all Canadian fund facts
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should be similar.
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Please note that I simply found Canadian equity
funds and their fund facts at random and these
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examples donât indicate a preference
for any of these funds.
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Weâll start with the RBC Canadian Equity
Fund - Series A. This fund is a no load fund
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(meaning there arenât any sales charges
up front or when you sell).
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Series A funds will pay a trailing commission
to the advisor, in this case 1%.
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Funds often have different types of series,
so you may have to go through the fund facts
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to see which is a no load fund that doesnât
pay an advisor a commission.
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As you can see with this fund,
the MER is 1.97% per year.
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You wonât explicitly see this fee when you
hold the fund, your investment return will
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simply be reduced by this amount.
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The top holdings in the fund are outlined
as well as the total number of investments
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held, in this case, the fund holds 114 individual stocks.
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Even though this is a Canadian Equity fund,
as I outlined in my video âHow are Mutual
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Funds Investedâ, you can see that
the fund can invest up to 25%
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of its holdings in foreign securities.
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The fees are included in the âHow much
does it costâ section.
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As you can see this fund doesnât have any
up-front or deferred sales charges and is
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therefore a no load fund.
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The MER is outlined again, and the Trading
Expense Ratio (which is the fundâs trading
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costs) are included to show a
total fund cost of 2.04%.
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Page 3 outlines that there is a trailing commission.
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You can see that the advisor who purchases
this fund for you will receive a 1% commission
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directly from RBC each year.
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This 1% is included in the 2.04% MER, so you
wonât have to pay an additional 1% on top of the
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2.04% youâre already paying.
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Finally, other fees such as short-term trading
fees, which are fees if you sell or switch
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out of the fund in a short period of time are applicable.
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The next fund weâll look at is the Dynamic
Power Canadian Growth Fund, series G.
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Series G has a trailing commission that pays
the advisor on an ongoing basis
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and has multiple load options.
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There is a front-end sales charge option,
a deferred sales charge option, and a low
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load sales charge option.
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Iâll explain what these mean as we go through the sheet.
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There are multiple fund codes listed here,
depending on which load option is chosen.
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The MER is 2.31%, $500 must be invested to
start, and $100 needs to be invested every
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time you want to add new money.
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This fund can invest up to 49% of
its assets in foreign securities.
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Interestingly, you can see that this fundâs
top holding is both an American holding
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and a mutual fund itself.
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Youâd have to go into the Dynamic Power
American Growth Class, Series E mutual fund
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information to further determine what youâre
actually holding in this Canadian equity fund.
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In the how much does it cost section, you
can see the various sales charge options.
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The first one listed is the Deferred Sales Charge.
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This means that if you sell out of this fund
within 1 year of purchasing it, youâll have
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to pay 6% of the fund value at the time of
sale to the fund provider as a penalty,
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reducing your proceeds.
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If you sell after holding it for 4 years,
but not a full 5 years, youâll have to pay
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4% of fundâs value in penalties to get out.
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With all DSC funds, you can redeem up to 10%
of the investments without paying this penalty,
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so there is (some) leeway.
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The second sales charge option listed is a
low load sales charge.
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This is similar to a Deferred Sales charge,
but a little bit less punitive when selling.
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If you sell during the first year and a half,
you pay 3% of the value in fees at the time of selling,
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and between a year and a half
and three years, you pay 2% in penalties.
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After that, there are no fees for selling the fund.
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We donât see the initial sales charge option
here, so your advisor would have to indicate
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at the time of purchase the percentage fee
they're charging up front.
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The trailing commissions are also different
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depending on which sales charge option is selected.
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Your advisor will receive between 0% and 1%
of the value of the investment each year for
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a front-end sales charge, between 0% and 0.50%
of the value each year for the DSC option,
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and between 0 and 0.5% for the first two years
with the Low Load option, and 0% to 1% after two years.
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As with the RBC fund, you donât have to
pay these fees on top of the MER,
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they are included in the fundâs MER of 2.31%.
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With this fund, you can see its trading
expenses are much higher at 0.22%.
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It's more active than the RBC fund and incurs
more expenses (ultimately paid by you).
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Finally, weâll look at a no-load F-class
fund, the TD Canadian Index Fund - F-series.
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Similar to the others, this fund can purchase
up to 30% in foreign securities.
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This fund provides a bit more information,
outlining the specific amount of investments
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in the various asset classes.
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While the fund can hold up to 30% in foreign
securities, most of the fund is currently
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being held in Canadian securities.
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Included in all fund facts sheets is the risk
rating of the fund, and the past performance,
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as shown here.
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The worst and best 3-month returns are included
to show the variability of returns you may
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see when holding this fund.
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Again, under the how much does it cost section,
you can see that this is a no-load fund with
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no sales charges The MER and TER are included,
the lowest out of my examples, which makes
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sense since this is an index fund.
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Finally, this fund does not pay a trailing
commission to the advisor for purchasing and
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holding the fund in your account.
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Like most mutual funds, a short-term trading
fee and switch fee may be incurred.
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There you have it.
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An overview of how you can read a mutual fundâs
fund facts to determine the relevant information
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about what youâre investing in, and what youâre paying.
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If you have any questions, please let
me know in the comments below.
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And thanks to Yiwei Song for requesting this
on my previous video âWhat fees you pay
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when investing in mutual fundsâ (sorry if
I mispronounced your name).
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Be sure to subscribe so you
donât miss any new episodes
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posted on YouTube every other Wednesday.
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And make sure to click the bell to
be notified when theyâre released.
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Iâm Susan Daley, and this has been Your
Money, Your Choices.
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