Investing 101: Mutual Fund Series

Mutual funds have long been a popular investment vehicle for Canadians, one that provides a great deal of options to choose from — there are currently over 5,000 mutual funds available in Canada. Mutual funds invest in different kinds of securities (such as company stocks or bonds) based on their investment objectives. They are often categorized into different “series” or “classes” which are designed to provide different benefits for investors and/or different compensation arrangements for the advisors that sell the fund. As a result, each series or class has different fees or expenses and, therefore, different performance results.

Remember: All series come with costs, such as one-time sales charges and ongoing management fees and expenses.

Understanding different mutual fund series

Each mutual fund series or class is typically identified by a letter. However, there is no uniformity in how fund companies use letter designations to distinguish between their series or classes. This article includes the common letter associated with a series, but be aware that fund companies may choose to use different letters for their funds.

Investors in each series or class may need to meet minimum investment and eligibility requirements. The following generally describes the various types of series or classes offered to investors and the specific purposes for which they are intended:

Retail series (Series A) – Most individual investors (also known as “retail investors”) buy these series or classes, as there are few or minimal requirements for an investor to meet and investors receive the advice of an advisor. These series or classes are typically available for purchase under one or more sales charge options. Advisors who sell the fund to investors usually receive commissions at the time of sale as well as ongoing trailing commissions for the advice that they provide.

Discount series (Series D) – These series or classes are tailored to do-it-yourself investors who purchase mutual funds through the discount brokerage channel. Discount brokers that sell these series or classes typically receive a significantly reduced trailing commission to reflect that the investor does not receive advice. As a result, the discount series or class generally has a lower management fee than the retail series.

Fee-based series (Series F) – These series or classes are available to investors who have fee-based arrangements with their advisor. An investor in a fee-based series or class typically negotiates the rate of their advisor’s fee with, and pays such fee directly to, the advisor. There are generally no trailing commissions on a fee-based series because the advisor is being compensated based on the rate negotiated with the investor. As a result, this series generally has a lower management fee than the retail series.

Institutional and high net worth series (Series I) – These series or classes have high minimum investment requirements and are typically aimed at institutional investors (such as pension plans) or investors making large investments in the fund. Funds in these series generally have lower management fees than the retail series of the same fund. Because investors who qualify for this series may not be automatically switched once they’ve reached the minimum investment requirement, it is important for investors and their advisors to be aware of their eligibility.

Special purpose series – Some fund companies have series or classes for special purposes. For example, some series or classes are designed for investors who wish to receive regular income from their investments on a tax-efficient basis. These series aim to pay cash distributions on a regular basis which might include a return of the investor’s capital.

If you are currently investing in mutual funds but aren’t sure about which series your investment is in, review the mutual fund’s Fund Facts document and speak with your advisor. The Fund Facts not only tells you which series your investment belongs to, but also provides important information about the performance, risks and costs associated with your specific series.

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