Back to School Basics: Mutual Funds

What are mutual funds and how should I pick them? Zorzet Liavas asks Ian Tam.

Ruth Saldanha 29 August, 2023 | 3:02PM
Facebook Twitter LinkedIn



You can watch the entire series here.

Zorzet Liavas: Hi, I'm Zorzet Liavas, and this is Ian Tam. At Morningstar, people talk a lot about mutual funds. What are they? Ian said he'd tell me. So, that's what we're talking about today.

Hi, Ian. What is a mutual fund?

Ian Tam: Hey, Zorzet. Thanks for coming in and thanks for that question, a great one. So, a mutual fund is basically when a group of people like you and I pool all our money together and invest in a bunch of different things, so they can be things like stocks or pieces of companies or bonds, which are basically IOUs from a company. So, when you pull all that investment together, all the investors get to benefit from when the investments grow and give you more money in return.

Liavas: How many are there?

Tam: That's another great question. There are many mutual funds. In Canada alone, there's about 21,000 mutual funds, and each one is just going to be slightly different holding a different combination of stocks and bonds.

Liavas: Is there a way to decide how to buy a fund?

Tam: Yeah, that's a really good question as well. So, there's a couple of things you want to think about when you're choosing a fund. The first is, usually when people invest, they're looking to save money to buy something in the future, so like a goal. So, maybe for you, it's like buying a new skates or some new gymnastics equipment, something in the future. So, once you understand what your goal is, then you can decide what kind of mutual fund to invest in because each one is going to be a little bit different.

The second thing you want to think about also is who is managing that mutual fund. So, almost like you have a figure skating coach, that coach tells you what to do and guides you to do certain routines, and that's kind of like what a fund manager does. They're kind of coaching the stocks and bonds within the portfolio to be able to grow over time. So, you want to pick a mutual fund with a good coach or with a good manager.

So, the last thing you want to think about when you're investing in a mutual fund is how much it costs. Like, some stuff is really expensive, some stuff is really cheap. You want to make sure you're getting a really good deal. So, generally, you want to look for mutual funds that are cheaper or that won't charge you as much for being invested in that fund.

Liavas: Thank you, Ian. For Morningstar, I'm Zorzet Liavas.

Get the Latest Personal Finance Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Follow her on Twitter @KarishmaRuth.


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility