TD Mutual Funds

The amount of risk associated with an investment portfolio is determined by the types of assets held. Risk can also be associated with the growth potential of a portfolio.

For example in the graph above:

• Portfolio A is composed entirely of bonds, which over time experienced both a low annual return – or growth – and low risk.
  • This is because bonds represent funds borrowed by a company or government in exchange for a predetermined interest rate, and guaranteed return of the principal by the borrower.
  • There is very little risk involved, unless that company or government goes bankrupt.

A stock is an individual share in a company. Stocks – also referred to as “equities” - are traded on exchanges all over the world, and therefore are subject to the dips and rises in the stock market.

• Portfolio B is composed exclusively of equities, which over time experienced high risk and high growth.

When a mutual fund portfolio includes a mixture of stocks and bonds, you benefit from diversification across these two asset classes

• Portfolio C is composed of 80% bonds and 20% equities.
  • This portfolio actually experienced lower risk than Portfolio A (100% bonds) and had a higher return.

• Portfolio D split the portfolio, investing 50% in bonds and 50% in equities.
  • While it experienced more risk than Portfolio A or C, it also got a much higher return as a result.

As you can see there are many options in how you can assemble your mutual fund portfolio. A Mutual Funds Representative with TD Investment Services Inc. will work with you to determine your investment goals and risk tolerance, and then recommend the most appropriate mix of assets for you.

Mutual funds spread your money out across many investment types. This investment strategy is called diversification.

Diversification helps you minimize your risk, because you aren’t putting all your eggs in one basket. You may also benefit from greater return potential.

So, with a mutual fund, your money is no longer dependent on the performance of a single investment, but instead is an average of the entire collection of investments. That way if one stock or bond – or other asset – in a mutual fund portfolio performs poorly, other well-performing holdings within the mutual fund’s portfolio, help offset any losses.

The same can be true when investing in more than one type of mutual fund to complete a well-balanced investment portfolio.

One of the best ways to diversify your portfolio is to invest among the three main asset classes:

• Money market
• Bonds
• Equities

Since asset classes tend to move independently of one another, positive performance in one asset class can help offset negative performance in another.

For mutual fund investors, a diversified portfolio would include a combination of money market funds for safety; bond and mortgage funds for income; and equity mutual funds for potential dividend income and long-term capital growth.

If you can contribute to your mutual fund on a regular basis, not only are you steadily growing your investment, you are saving money while doing so. If you set up a Pre-Authorized Purchase Plan you are investing a fixed amount to your fund at regular intervals.

This strategy, called dollar-cost averaging, lets you buy more units when prices are low and fewer units when prices are high. While it doesn’t guarantee a profit, or help protect you against a loss, it can result in a lower average unit cost over time.

For example, let’s say you have $60 a month to invest in a particular fund that fluctuates in price.

January price = $5.00 – You buy 12 units
February price = $3.00 – You buy 20 units
March price = $6.00 – You buy 10 units

In three months, you have invested $180 and purchased 42 units, with an average cost per unit of only $4.29.

Best of all, when you set up a TD Comfort Portfolio, a Portfolio Manager does all the work for you. So all you have to do is set up a Pre-Authorized Purchase Plan and enjoy the savings.

In order to set up a Pre-Authorized Purchase Plan, you must meet a $2,000 initial purchase minimum.

Since mutual funds qualify as securities and not deposits, they are not guaranteed, their values change frequently and past performance may not be repeated.

However, fund managers and the funds themselves operate under strict securities regulations. For example, mutual funds are owned by the unitholders (people who own the mutual fund) and are separate legal entities from the companies that operate them. Securities legislation also requires that mutual fund assets be held in trust by a custodian on behalf of unitholders.

You can choose funds that invest in money market investments such as government issued treasury bills, income investments such as bonds, or equity investments such as stocks of corporations, both domestic and international.

Some funds are broadly diversified, while others target an asset class or a specific sector of the economy, such as international bonds or science and technology stocks. Others aim to replicate the performance of a well-known index, such as the S&P/TSX Composite Index in Canada or Standard & Poor's (S&P) 500 in the United States.

While there are hundreds of choices, each mutual fund will fall into one of the three main asset classes: safety, income or growth. Or, you can choose a balanced fund which is actively managed to maintain a mix of various asset classes.

The minimum initial investment for TD Mutual Funds is $100 for a non-registered account and $100 for an RSP account. The minimum subsequent investment is $100 for both types of accounts.

A TD Mutual Funds Pre-Authorized Purchase Plan is a convenient and affordable way to build your savings. You can start with as little as $25 per fund per transaction and this amount can be automatically deducted from your bank account on a weekly, bi-weekly, semi-monthly, monthly, quarterly, semi-annual, or annual basis.

Transfers between TD Mutual Funds are free, however, a 2% early redemption fee is payable to all funds except money market funds if you transfer or sell units of these funds within 30 days (90 days for TD e-Series) of purchase. This fee is designed to protect unitholders from the costs associated with other investors moving quickly in and out of the Funds.

Frequent trading can hurt a fund's performance by forcing the portfolio manager to keep more cash in the fund than would otherwise be needed or to sell investments at an inappropriate time. It may also increase a fund's transaction costs.

Mutual funds are sold through registered Mutual Funds Representatives or other registered advisors with mutual fund or securities dealers associated with banks, trust companies and insurance companies in Canada.

At TD, you can purchase TD Mutual Funds through TD Investment Services Inc. by contacting a Mutual Funds Representative through EasyLine telephone services, EasyWeb Internet access or by visiting any any TD Canada Trust branch.You can also purchase TD Mutual Funds through TD Direct Investing and TD Wealth.

Net income and net realized capital gains earned by a mutual fund are generally passed on to investors in the form of distributions. The frequency of distributions will vary depending on the mutual fund but will generally be monthly, quarterly or annually.

You can also earn a capital gain when you sell your mutual fund or switch from one mutual fund to another at a price higher than you paid.

The tax treatment of distributions received or capital gains realized will depend upon the type of account in which you hold the investment.

If you hold a mutual fund in a registered plan (such as an RSP, RIF, RESP or TFSA) distributions paid by a mutual fund and any capital gains realized are generally sheltered from tax. Any amount you withdraw from a registered plan (excluding a TFSA) is generally fully taxable. Amounts withdrawn from a TFSA are not taxable.

If you hold a mutual fund in a non-registered account, distributions paid by the mutual fund are taxable whether they are received in cash or reinvested into the mutual fund. You will receive a T3 Supplementary/Relevé 16 tax slip which will tell you the amount and type of income to report on your tax return. You must also include in your taxable income any capital gains realized from selling or switching your mutual fund. It's up to you to calculate and report the capital gains you realize on your transactions. Although an official tax slip is not required, mutual fund companies are required to report all sales or switches to Canada Revenue Agency.

While past performance does not guarantee future growth, annualized returns for different periods (e.g. 1-year, 3-years, 5-years, 10 years) are often used to compare funds and the quality of their management. Most major daily newspapers publish mutual funds performance tables each month for periods ranging from one month to 10 years or more.

Comparing a fund with others in its peer group is a good way to evaluate past performance. Mutual fund tables make it easy by grouping similar funds together. The ability to consistently outperform its peers is one sign of a good-quality fund.

To make a fair comparison, it is important to recognize that all funds in one category are not the same. For example, some Canadian equity funds are managed conservatively, while others aggressively pursue growth. One fund manager may emphasize longer-term value, while another may actively trade investment positions at different times in the market cycle. If in doubt, find out from the fund company, the simplified prospectus or the fund facts sheet, what the fund's investment objectives are and how the fund is managed. While some performance numbers can be very attractive, you may discover that the fund's investments are too risky for you.