About mutual funds

What is a mutual fund?

A mutual fund is a pool of money that is professionally managed to achieve specific objectives. A money manager invests the assets in stocks, bonds, short-term money-market instruments or other securities to achieve goals such as monthly income, capital appreciation, capital preservation and/or tax-efficiency. Each mutual fund unit represents an equal share in the ownership of the fund's holdings and the income and/or capital gains those holdings generate.

What's the role of a mutual fund in a portfolio?

Mutual funds provide choices for conservative, balanced or growth-oriented portfolios and can help build a strong portfolio diversified across asset classes, geographic regions, market capitalization and management style.

Who can benefit from mutual funds?

• Individuals who want to diversify their portfolios with a professionally managed product
• Investors who seek a cost-effective way to participate in domestic and global equity markets within a broadly diversified investment product
• Individuals seeking products that provide access to specialized investment areas such as precious metals, oil and gas, global equities, etc.

What are the advantages of mutual funds?

• Professional management: Professional money managers research, select, and monitor the performance of the securities in the fund.
• Diversification: Spreading investments across a wide range of countries, industries, asset classes and securities is a proven way to lower risk and enhance returns. It is easier to achieve diversification by investing in mutual funds than in individual stocks or bonds.
• Affordability: Mutual funds generally require just $500 to get started, and accept smaller subsequent investments.
• Convenience and flexibility: Mutual fund investors can easily purchase or redeem units at the net asset value (NAV) at any time. An automatic purchase plan can be set up to make regular debits from the investors' bank account.

What are the risks of investing in a mutual fund?

• Mutual funds are not guaranteed. Unlike bank accounts or GICs, mutual fund units are not covered by the Canada Deposit Insurance Corporation or any other government deposit insurer.
• A mutual fund's net asset value will fluctuate with changes in the market value of its investments.

There are other risks associated with specific types of mutual funds (e.g. equity, fixed income). For full details of these risks, please refer to our mutual fund prospectus, and/or the prospectus for our corporate class of mutual funds.

What is the difference between an open-end mutual fund and a closed-end investment trust?

Both types of funds pool the assets of numerous investors into a single, professionally managed portfolio. However, mutual funds are open-ended, which means that units are continually available for purchase and redemption. Every investor making a transaction in the same fund on the same day pays (or receives) the same price, called the net asset value per share (NAV).

A closed-end trust sells a fixed number of units only during an initial public offering. After that, units must be bought and sold on a stock exchange. Therefore the price fluctuates with supply and demand, and may be more or less than NAV. Some trusts offer redemptions at NAV once a year at a set time, starting after the first anniversary of the issue.

What is net asset value (NAV)?

NAV is the value of a fund unit, based on the daily closing price of all securities held by the fund, less an amount for fund expenses, and divided by the number of outstanding shares at that time.

Click here for information on Sentry Select's mutual funds.