The smart investor: why are the “mutual funds” still as popular?

In this column, we give you concrete ideas to place your money.

Do you have mutual funds (“mutual funds”) in your portfolio? Furthermore, Despite the meteoric rise in stock market negotiated funds (FNB). Nevertheless, these products from another time continue to dominate the Canadian landscape. In addition, But why then?

• Read also: In the eye of Quebec inc.: A young shoot sold for $ 87 million

• Read also: The smart investor: scholarship champion at 18

. Furthermore,

The management costs of common funds are high: they often reach 1.5%, or even more than 2%. However, On the FNB side, the costs are less than 0.5% most of the time (and as little as 0.06% for certain index smart investor: why “mutual funds” new funds).

Another drawback, unlike FNB, it is not possible to negotiate common funds in real time. In addition, Their smart investor: why “mutual funds” price is only disclosed once a day. Moreover, In the era of instantaneity, it is detonated!

80% of the market

And yet. However, At the end of June, more than $ 2,300 billion was placed in common funds against barely $ 592 billion in FNB. In addition, The valiant common funds, whose origins date back to 1932 in Montreal, still hold 80% of the Canadian market.

It is all the more surprising that Canada is a pioneer in the FNB sector. Consequently, It was in Toronto that the very first FNB in the world was launched in 1990.

The situation is partly explained by the “well -established practices of financial advisers”, politely advances TD in a recent report.

There are approximately 110,000 advisers which can sell smart investor: why “mutual funds” new common funds in Canada, including around 75,000 which cannot offer FNB. The latter are largely advisers who work in banking branches and Desjardins boxes.

smart investor: why “mutual funds”

Access to FNB is more difficult. You must have a brokerage account to buy it while for common funds. you just have to be a bank of a bank or desjardins.

And as common funds have higher costs than FNB, it is a paid product for financial institutions and advisers. Hence the marked interest of these to sell you …

Periodic purchases

That said, the common funds still have some advantages compared to the FNB.

The most important thing is undoubtedly the possibility of programming periodic purchases. which allows you to invest regularly without having to think about it.

You just have to choose the amount and frequency of purchases and these are made automatically. The common funds make these operations smart investor: why “mutual funds” new at fixed amounts (for example $ 50 per week) very easy since it. is possible to buy fractions of common funds.

I already hear you tell me that WealthSimple smart investor: why “mutual funds” offers the “recurring purchase” of shares. FNB, by the same fact, the possibility of buying fractions of FNB shares. TD also allows the purchase of fractions (but not for all titles). The fact remains that most platforms, including Disnat and National Bank Direct Cartage, do not yet offer this option.

TD advertising on action fractions. Illustration TD

No more choices

There are more than 4,500 mutual funds in Canada, mostly managed actively. On the other hand, there is “only” 1,700 FNB. If you believe in smart investor: why “mutual funds” new active management, you will be better served with common smart investor: why “mutual funds” funds. If you are a supporter of index strategies, FNBs are for you.

Tax impacts

In his report. TD points out that one of the main reasons why the common funds remain so popular, it is simply taxation. Some investors have significant sums in unregistered funds. prefer not to sell to avoid triggering capital gains that would cause a large tax bill.

What about the future?

Common investment funds will no doubt lose many feathers with massive heritage transfers that accelerate between baby boomers. younger generations.

With growth of 36% last year, FNB undoubtedly represent the future. In general, these are products that give you more for your money.

But the most important thing is to invest regularly. If you like the simplicity of the common funds. it is probably better to opt for this product, smart investor: why “mutual funds” new even if the costs are higher. FNB at low cost that we forget to smart investor: why “mutual funds” buy, it does not give big yields!

Do common funds still have a place in your portfolio? Write me: [email protected].