Are mutual funds a good value?

Investors often fall short when it comes to knowing how much they pay in mutual fund fees and what a mutual funds value truly is. Despite stringent guidelines for mutual fund information disclosure, many investors may not be familiar with what these fees pay for and the value they provide to mutual fund investors. This article will focus on understanding what goes into the management expense ratio and its role in providing value for a mutual fund investor.

Competent and professional portfolio management should be the main driver of a mutual fund’s performance and it’s also a major reason why mutual funds could be a good choice for investors who don’t have the time or the inclination to research and choose individual securities. The portfolio manager’s goals and interests are tied to your clients’ success because their compensation is based on how well the fund performs. For investors who are just getting their feet wet, mutual funds have several other advantages. First, they could offer instant portfolio diversification when diversified across asset classes and sectors. This diversification limits risk because a decline in the value of any specific security could be offset by the stability or increasing value of other securities in the package. Unitholders benefit from a level of diversification made possible by the amount of pooled investment dollars that most individual investors would not be able to achieve.

The wide selection of mutual funds is another plus. You can choose funds that focus on Canada or the U.S., others that invest only in a narrow sector such as energy, technology and health sciences, and still others that focus on fast-growing economies such as Brazil, Russia, India and China. If there is an investment theme out there, chances are there’s a fund to meet an investor’s need.

Additionally, mutual funds are easy to buy and sell. They can be redeemed at anytime so cash is available in an emergency. Remember that redemptions made within 30 days of purchase in non money-market funds may be subject to an early redemption fee.

Finally, mutual funds offer an investor the opportunity to buy into a diversified mutual fund through a systematic investment plan for as little as $25 a month. Otherwise, for the average investor to construct a well-balanced portfolio holding a handful of stocks could be fairly expensive.

For a further discussion around your investment and estate planning issues, contact Neil Mardian, M.Sc. (Mgmt) CFP at 403-504-3026 or neil.mardian@td.com