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mutual funds 101

You've got some money you'd like to invest . You've ruled out putting it under your mattress, and you're hoping for something a bit more lucrative than your savings account. At the same time, you're not sure you want to become a stock-picker. Over dinner the other night, your friend mentioned "mutual funds." Now, you only have a few questions.

What is a mutual fund, anyway?

A mutual fund is a pool of money managed and invested by investment experts. When you invest in a mutual fund (by buying “units,” which represent an ownership interest in the fund), you’re really combining your money with other like-minded investors.

Each mutual fund has a professional investment manager who researches, chooses and monitors investments for the fund. Each fund also has an investment objective, which determines the type of investments that the fund owns.

Why do people like them?

Mutual funds are widely available, and affordable. They allow you to benefit from the skills of professional investment managers. Plus, most funds have built-in diversification, since they spread risk across a number of different investments.

What different types of mutual funds are there?

Each mutual fund has an investment objective, which determines the types of investments the fund will hold. There are three main fund types:

Savings funds such as money market or T-Bill funds, hold mostly money market investments and are designed to produce a steady level of income with a high priority on protecting the value of your initial investment. These funds are low risk, and provide an excellent place to park funds that you might want quick access to.
Income funds such as bond or mortgage funds, primarily focus on fixed-income securities. These investments have the potential to generate a higher level of income than savings funds, with some capital growth over the long term. They are low-risk to medium-risk investments.
Growth funds (often called equity funds) invest primarily in the stocks of different companies, with the objective of generating capital growth. The emphasis on growth makes them a higher-risk investment. Over the long term, growth funds typically outperform all other asset classes.

When's the right time to invest in mutual funds?

It’s generally easier to come up with a smaller amount to invest on a monthly or weekly basis than to make a large, lump-sum contribution. A regular investment plan allows you to choose when and how often you make contributions — ensuring you make investing a priority. With a CIBC Regular Investment Plan, money will be automatically withdrawn from your account and invested in a range of CIBC investment solutions. You can invest with pre-authorized contributions of as little as $25 a month.

Taking advantage of the effects of compounding is one of the best ways to make your money work for you. Compounding is money multiplying itself. Your investment earns a return, then you earn a return on the return and so on. To benefit from the power of compounding, its important to start saving early.

Learn about mutual funds from CIBC Securities Inc. for customers of President's Choice Financial services.

Mutual funds are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer, nor are they guaranteed by CIBC. Mutual fund values change frequently and past performance may not be repeated.