Mutual Fund

Mutual Funds what are they?

By Canadian Securities Administrators

A mutual fund is a pool of money that is managed on behalf of investors by a professional money manager.

The manager uses the money to buy stocks, bonds or other securities according to specific investment objectives that have been established for the fund.

In return for putting money into the fund, you'll receive either units or shares that represent your proportional share of the pool of fund assets.

In return for administering the fund and managing its investment portfolio, the fund manager charges fees based on the value of the fund's assets.

Mutual funds are 'open-ended' investment funds, meaning that new investors can contribute money to the fund at any time, and existing investors can return their units or shares to the fund for redemption at any time.

When you redeem your units or shares of a mutual fund you will receive a cheque based on the current market value of the fund's portfolio.

Several parties are involved in the organization and operation of a mutual fund, including:

» Mutual Fund Manager:
Establishes one or more mutual funds, markets them and oversees their general administration

» Portfolio Adviser:
The professional money manager appointed by the Mutual Fund Manager to direct the fund's investments. The Mutual Fund Manager also often acts as the Portfolio Adviser

» Principal Distributor:
Coordinates the sale of the fund to investors, either directly or through a network of registered dealers

» Custodian:
The bank or trust company appointed by the Mutual Fund Manager to hold all of the securities owned by the fund

» Transfer Agent and Registrar:
The group responsible for maintaining a list of all investors in the fund

» Auditor:
The independent accountants retained by the Mutual Fund Manager to audit each year, and report on the financial statements of the fund

» Trustee:
The entity that has title to the securities owned by the fund on behalf of the unit holders