A new look at an old favourite: Modern mutual funds
Mutual funds have long been a preferred investment product for Canadians. How have they remained relevant in today’s economy?
For most Canadians, mutual funds have long been a favourite for set it and forget it investing when it comes to saving for the future. There’s no denying the importance of mutual funds to Canadians, and the Canadian economy. Collectively, one in three Canadian households hold mutual funds, worth a total of $1.48 trillion as of December 31, 2017. 86% of Canadians believe they’re more effective than GICs, bonds, and stocks when it comes to fulfilling their financial goals. On top of that, the mutual fund industry contributed $7 billion in taxes across Canada. Clearly, mutual funds offer Canadians significant value.
However, like the economy and the world around us, mutual funds are changing. There are nearly 500 mutual fund companies in Canada alone, offering more than 36,000 different funds, affording the peace of mind that comes with their immediate diversity, helping Canadians steer clear of putting all of their eggs in one basket. Mutual funds provide investors with a simple and effective solution to invest for their future.
Now, all of that said, mutual funds are evolving right before our eyes.
Since 2015, mutual fund companies have been making their products more affordable to investors. Factors such as the emergence of low-cost competitive products, the popularity of fee-based accounts, increased price transparency, and greater economies of scale, have been the driving forces behind lowering the cost of ownership by six basis points in just the past three years. This is great news for investors.
In addition, the introduction of regulatory initiatives such as the fund facts document and cost and performance reporting, mean investors have greater access to information about their mutual funds holdings. This increased disclosure and transparency benefit investors by making them more informed than ever.
Supported by the concerted effort to evolve mutual funds and maintain their appeal as a viable investment product, mutual fund assets under management (AUM) in Canada and the U.S. grew 20% between 2015 and 2016.
This shows that the changes that have been made to keep mutual funds an attractive option are working, and Canadians are still happily investing in these products.
In addition to diversity, ease of access, and hands-off investing, mutual funds have a low barrier to entry, making them accessible to all Canadian investors, regardless of the size of their initial investment. In fact, half of all mutual fund investors started with less than $25,000 when they began working with an advisor. Everybody has to start somewhere, right?
The mutual fund industry has a proven track record for innovation and transformation. These attributes keep mutual fund products relevant and effective for investors. Want to be part of this dynamic industry? Register for IFSE’s Canadian Investment Funds Course.