TD Mutual Funds Review

How do mutual funds work?

Mutual funds are a portfolio of assets, compiled and managed by professionals. Your investment in a mutual fund will rise and fall based on the performance of these underlying assets. As an example, you might buy a mutual fund that is 90% invested in stocks and 10% invested in bonds. If stocks go up but bonds go down, the mutual fund value will likely go up, since it is heavily concentrated in stocks.

On the other hand, if the stock market goes down but bonds go up, the fund price will most likely drop, although likely not as much as in the previous example due to the bond exposure. Mutual funds also have a management expense ratio, or MER, which comes out of the total assets of the fund before your investment returns are calculated.

How can I invest in TD mutual funds?

You can invest in TD mutual funds either through a TD Wealth advisor or through their DIY investment platform, TD Direct Investing. You can get started with as little as $100, and you can hold TD mutual funds in your RRSP, TFSA, or other registered or non-registered investment accounts. Note that the type of account you invest in will have tax implications. While capital gains from mutual funds are taxable, you can avoid this tax by buying them in a TFSA.

What types of mutual funds does TD offer?

TD offers 8 types of mutual funds, including balanced, Canadian equity, global equity, fixed income, money market, sector, U.S. equity, and a variety of portfolio options. Deciding which mutual fund is right for you depends on your goals. If you are aiming to grow your wealth, then you should probably choose a mutual fund that is mostly concentrated in equities. If you are risk-averse and/or trying to protect your savings, a lower-risk, fixed-income mutual fund could be ideal.

How many mutual funds does TD offer?

As of this writing, TD currently offers 133 different mutual funds. This is fewer than Scotiabank and BMO, which offer 3,500 and 404, respectively. Regardless, the range of funds offered within the 133 on offer means that they will likely be sufficient for most investors’ needs.

How to choose the best mutual fund for you?

The ideal mutual fund depends largely on your goals. If you want to grow your wealth, then a mutual fund that is highly concentrated in stocks could be a good idea, since stocks have historically been the best-performing asset class. If you're an income-focused investor, or trying to preserve your wealth, you should consider mutual funds that are more concentrated in lower-risk assets like bonds and GICs. Regardless of your investing goal, a lower MER is always a better choice.

How to choose between ETFs and mutual funds?

Exchange-traded funds (ETFs) are a collection of stocks that can be bought and sold as a single fund on the stock market. ETFs can be used to track particular sectors, like technology, or an entire index, like the Canadian, American, or global stock market. Unlike mutual funds, which can be bought or sold just once a day, ETFs can be traded at any time when markets are open.

Since mutual funds are actively managed, they have higher fees than ETFs. ETFs tracking the North American and global stock markets have also historically outperformed most mutual funds. If you're an investor looking to lower your overall cost and keep pace with the market, you might want to consider investing in total-market ETFs, rather than index funds.

How to choose between index funds and mutual funds?

Index funds are technically a type of mutual fund; however, there are some key differences. While equity-focused mutual funds are actively managed and aim to beat market returns, index funds are passively managed and try to match market returns.

If you're looking to get better returns than a standard stock, you may want to look to mutual funds. However, the vast majority of mutual funds actually underperform the market and have higher fees than index funds. On the other hand, if you want guaranteed market returns and lower fees, then index funds are the way to go.

How do TD mutual funds compare to index funds?

We compared the actively managed TD Comfort Aggressive Growth Portfolio, which includes several TD mutual funds that are heavily invested in the global stock market, against the passively managed iShares Core Equity ETF Portfolio index fund (XEQT), which also tries to track the global stock market.

Over the past 5 years, the TD Comfort Aggressive Growth Portfolio has returned a similar amount as XEQT (which slightly outperforms it). TD’s portfolio has a MER of 2.23%, whereas XEQT has a MER of 0.20%. That extra difference in returns might seem small, but over decades it compounds into significant money, as does the 2.03% difference in MER. While some investors may find peace of mind knowing that their money is being actively managed by a professional, index funds generally have both lower fees and better returns.

Are mutual funds a good investment?

Mutual funds can be a good investment if you're comfortable with a professional actively managing your portfolio. Index funds, on the other hand, often have lower fees and higher returns than actively managed mutual funds.

And if you're risk-averse, you might be better off directly investing in assets like GICs or bonds, rather than doing so through mutual funds. This is because the higher MER on mutual funds can negatively impact returns.

Which Canadian banks have the best mutual funds?

TD mutual funds have the lowest required minimum investment, allowing you to buy a fund with $100, compared to Scotiabank and BMO’s $500 requirement. All three banks provide a wide variety of account types in which you can purchase mutual funds. TD, Scotiabank, and BMO also all provide flexibility regarding the type of mutual fund, whether it be growth-based, income-based, or a mixture of both. Finally, TD offers the fewest mutual fund options with 133, compared to BMO's 404 and Scotiabank's 3,500.