One of the main ways to grow your retirement nest egg or even just your current net worth is through wise investments. Unless you’re a stock market wiz, you might find it easier to invest in a mutual fund, since you pool your money with that of other investors and a professional money manager does the nitty-gritty work of investing that money and keeping track of it all. How do you choose the best mutual fund for your needs, though? There are several things to consider. Our tips will help you figure out how to find the best mutual funds in Canada.

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Know why you want to invest
Before you start going through the mutual funds Canada list, know why you’re investing and what you hope to get out of the investment. Are you planning to retire at 40? Do you want to pay off your student debt? Do you want to increase your current income? Once you know why you want to invest, it will help you decide on the type of fund you need, such as a capital appreciation fund or an income fund.

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Know whether you want active or passive management
With an actively managed mutual fund, a portfolio manager does lots of research to make investment decisions. The idea is to outperform the benchmark interest. A passively managed mutual fund is also called an index fund and here there isn’t as much trading of assets. The idea is to duplicate the benchmark index’s performance. It will help you to become familiar with the financial terms most Canadians don’t know but should, and to learn the pros and cons of actively and passively managed mutual funds.

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Consider the volatility of the fund
A very volatile fund means that the investment will be much riskier. It can bring great rewards if things go well, but there is also a greater chance of you losing lots of money when the value of your portfolio drops. If you need the money in the short term, a less volatile fund is a better option. If you want to make money in the long term, taking risks might be worth it in the end.

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Consider dividends
For the best Canadian mutual funds dividend, you may want to consider an income fund. These funds normally pay dividends regularly, so you essentially earn money while sleeping. They’re less volatile too, so come with fewer risks than more volatile growth funds which don’t normally pay dividends.

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Look at the fund’s returns
To gauge how a fund might perform in good and bad markets, look at how it has performed in the past. It’s not going to give you a definite indication of how the fund will perform in the future, but it will give an idea of how volatile the fund is, which in turn gives you an idea of the risk. Fund profiles usually show annualized returns over several years, as well as calendar year returns that indicate how the fund performed within a given year.

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Consider charges and fees
In Canada, your statements by law have to show your actual net return, which is amount after the fees for managing the fund have been deducted. This can make it easier for investors to fall into the trap of thinking they’re not paying any fees. However, fees are how mutual fund companies make their money. There are different kinds of fees, so you might want to talk to a reputable financial advisor about the fees you’ll be paying. After all, paying a smaller percentage in fees will mean more money for you in the long run.

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Look at the management expense ratio
Buying and selling stocks is one of the best ways to invest $100 and grow it to $1,000. However, if you pay too much in fees it will take longer to grow your investment. One way of knowing how much a mutual fund company charges in fees is to look at the management expense ratio. This shows the total percentage of assets being charged to cover the fund’s expenses. If the ratio is high, you’ll see smaller returns on your investment.

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Consider the ratings
There are several websites where you can access Canadian mutual fund ratings. These ratings will give you an idea of how well a particular mutual fund has performed in the past. Using this information, you can get a picture of how the fund might perform in the future. Remember though that past history is no guarantee of future performance.

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Consider the size of the fund
The size of the mutual fund doesn’t typically affect its ability to meet investment objectives. However, a fund that is too big means that it becomes more difficult for the portfolio manager to run the fund efficiently. The fund might have to shift its investment process in order to accommodate the large investment inflows and performance may suffer as a result. Investopedia suggests that you use $100 billion in assets under management as a benchmark for gauging when the fund might be too big.

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Consider taxes
There are several great retirement tax tips that will help you save your nest egg. When it comes to investing in a mutual fund, you need to consider taxes too. An unusually high turnover may mean larger tax liabilities for you as an investor, so don’t fall into the trap of thinking a mutual fund with a very high turnover will automatically mean more money in your pocket.
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