RRSP Season 2012: Fund Facts for mutual funds

If you are looking at purchasing a mutual fund this RRSP season, you will want to take advantage of a relatively new document that contains key information about mutual funds.

This document, known as Fund Facts, includes a description of the mutual fund, as well as answers to important questions you should be asking when you are making any type of investment.

Some of the questions the Fund Facts document poses are:

What does the fund invest in?

  • This is where you will find a snapshot of the fund’s holdings, including the top 10 positions of the fund, what percentage of net asset value they represent, and the investment mix.

How has the fund performed?

  • Here you will find past performance of the fund, with average and year-by-year returns going back 10 years if the fund has been around that long. If not, this section will show the fund’s performance from the date it was created and became a reporting issuer. Returns are after the deduction of expenses, which can reduce the fund’s returns.

Who is it for?

  • This part of the document discusses suitability – the kind of investor and the type of portfolio the mutual fund is designed for.

How risky is it?

  • This section contains a table with a risk rating. There are five ratings available for the fund to use: “low”, “low to medium”, “medium”, “medium to high”, and “high”. The fund will identify which category it falls under using the risk classification methodology chosen by its manager.

How much does it cost?

  • If you want to know what you are paying in various fees, you will want to go over this section in detail. This is where you will find explanations about sales charges, fund expenses – including the Management Expense Ratio (MER) and the Trading Expense Ratio (TER) – trailing commissions, and other fees.

The Fund Facts document also contains a “Quick facts” section, which gives you an overview of the fund, including its value on a particular date, who manages it, and the required minimum investment, among other things. Additionally, there are sections in Fund Facts where you can find out about guarantees, and how tax rules and rates may affect it.

As of January 1, 2011, Fund Facts has been required to be made available to investors on request or on the mutual fund’s or mutual fund manager’s website. You can also request it from the person who sells you the mutual fund or search for the document you are looking for at SEDAR.com.

Finally, below are some links to a few articles about Fund Facts that you may want to review.

Fund fact sheets can help you help yourself, The Globe and Mail

Fund Facts – The answer to every advisor’s prayer?, Financial Post

Helping out with Fund Facts, Investment Executive

Watch for our final RRSP post next week.