There are almost 1,500 mutual funds available to Canadian
investors, offered by about 80 financial companies; most can
be put into the following categories:
Equity mutual funds: Equity funds primarily invest
in the shares of companies, although some of these funds
do invest in other "hard" assets such as real
estate and gold. If you invest in an equity fund, most of
your returns will come in the form of capital gains and
dividends.
Bond & mortgage mutual funds: As the name implies,
invest in bonds and mortgages. A bond is debt issued by
a government or corporation, while a mortgage is debt with
real estate as security. Returns come generally in the form
of interest and capital gains.
Money market mutual funds: These funds invest in
short-term debt obligations of governments and corporations.
It is the safest type of mutual fund and all returns are
in the form of interest. Your rate of return closely follows
prevailing short-term interest rates.
Balanced mutual funds: Are a combination of the
three previous fund types. The amount invested in each asset
type depends upon the restrictions placed on the fund by
its prospectus and the manager's own judgment. Your returns
may include capital gains, dividends and interest, proportionate
to the investments in the fund.
Segregated Funds: These are the same as any other
mutual fund except that they are only offered by or through
a life insurance company. The key difference with regular
funds is that when you die you are guaranteed to get the
money back that you put in and at maturity - usually defined
as 10 years from now you are guaranteed a minimum payment
of a specified percentage of all your deposits.
Open and Closed-end Funds: Most mutual funds are
open-end. It means that the fund always accepts new deposits.
Closed-end funds have a fixed number of shares from the
beginning. Once those are sold the only way to buy into
the fund is to buy shares from a current owner.
