Mutual Fund Benefits

Mutual funds offer a variety of benefits, including professional investment management, reduced risk through diversification, liquidity and convenience. Below is a summary of these four main benefits that have made mutual funds a popular investment among Canadians.

Professional Investment Management

Mutual funds offer the experience and skill of a professional investment manager (fund manager) or team of investment managers you may not have access to otherwise. In addition, operating costs are spread among unitholders, thereby minimizing the expense of professional investment management.

A mutual fund's investment objectives are established by the mutual fund company. The three main objectives are safety of capital, income, and growth. Each one of these investment objectives carries a certain risk factor, so it is important to understand the risk/return ratio associated with each mutual fund's investment objectives before you invest in a particular mutual fund.

Once the investment objective of the fund has been set, it is the responsibility of the fund manager to manage the mutual fund portfolio within the established investment objectives of the fund. Depending on the investment management style, the fund manager will research and invest in individual securities that meet the investment objectives of the fund. The fund manager also monitors performance, reviews research and sets strategy.

Reduced Risk Through Diversification

Mutual funds provide an efficient way to achieve diversification within an individual's investment portfolio. A mutual fund's assets are invested in a number of different securities which reduces the impact of market or economic changes on any one security or asset class.

To achieve a diversified mutual fund portfolio, the fund manager will invest the mutual fund assets in a number of ways, which may include selecting securities in different companies, industry sectors, asset types, geographic areas or by currency.

Liquidity

Mutual funds are liquid investments. Mutual fund investors may redeem all or any portion of their shares/units on any business day (restrictions may apply) at the current net asset value per share (NAVPS). Please read the fund's prospectus for more details, The NAVPS of the mutual fund is usually calculated every business day and is based on the market value of the individual securities within the mutual fund portfolio.

Convenience

Mutual funds are a convenient way to invest both inside and outside of a retirement savings plan. Mutual funds as an RRSP investment allow investors to plan for their retirement conveniently and efficiently. Investors appreciate the ease with which they can monitor and compare the performance of Canadian mutual funds they own (or plan to purchase) by reviewing the financial pages of most daily newspapers.

In addition, mutual fund companies provide investors with a convenient and efficient way to meet investment goals by offering Pre-Authorized Chequing Plans (PACs) and Automatic or Systematic Withdrawal Plans (AWDs or SWPs). PAC plans (also known as pre-authorized deposit, or PAD plans) are referred to at CIBC Investor’s Edge as Regular Investment Plans, or RIPs.

Automatic reinvestment of distributions and free transfers between mutual funds of the same family are additional features offered by many mutual fund companies.

All of these plans and features help make mutual funds an attractive and convenient investment for your portfolio.

The information contained herein is considered accurate at the time of posting. CIBC, CIBC World Markets Inc. and CIBC Investor Services Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

CIBC Investor's Edge is the discount brokerage division of CIBC Investor Services Inc., member CIPF. CIBC Investor Services Inc. does not provide you with any legal, tax, or accounting advice or advice regarding the suitability or profitability of a security or investment in a CIBC Investor's Edge account. You assume full responsibility for transactions in your CIBC Investor's Edge account and for your investment decisions.

The information on this Web site is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual, and you should not rely on it as such.