PWL Capital April 4, 2018 Personal Wealth How to Read a Fund Facts Document On a previous post, “Mutual Fund Fees”, a viewer recently asked that I create a video on how to determine the various fees associated with mutual funds based on their documentation. If you haven’t watched my previous video, I’d suggest you do so to give some more context to today’s topic. The easiest way to find out the fees you’ll pay when holding a mutual fund is through the security’s Fund Facts. The Fund Facts is a document that every mutual fund provider must provide and make available for investors. New-ish regulations also require that advisors provide this document to investors in advance of making a purchase in an account (unless it’s a discretionary relationship). So in today’s video, I’ll be outlining the Fund Facts document and the relevant information included. In my examples today, I’ll use all Canadian equity funds, but all Canadian fund facts should be similar. Please note that I simply found Canadian equity funds and their fund facts at random and these examples don’t indicate a preference for any of these funds. We’ll start with the RBC Canadian Equity Fund – Series A. This fund is a no load fund (meaning there aren’t any sales charges up front or when you sell). Series A funds will pay a trailing commission to the advisor, in this case 1%. Funds often have different types of series, so you may have to go through the fund facts to see which is a no load fund that doesn’t pay an advisor a commission. As you can see with this fund, the MER is 1.97% per year. You won’t explicitly see this fee when you hold the fund, your investment return will simply be reduced by this amount. The top holdings in the fund are outlined as well as the total number of investments helds, in this case, the fund holds 114 individual stocks. Even though this is a Canadian Equity fund, as I outlined in my video “How are Mutual Funds Invested”, you can see that the fund can invest up to 25% of its holdings in foreign securities. The fees are included in the “How much does it cost” section. As you can see this fund doesn’t have any up-front or deferred sales charges and is therefore a no load fund. The MER is outlined again, and the Trading Expense Ratio (which is the fund’s trading costs) are included to show a total fund cost of 2.04%. Page 3 outlines that there is a trailing commission. You can see that the advisor who purchases this fund for you will receive a 1% commission directly from RBC each year. This 1% is included in the 2.04% MER, so you won’t pay an additional 1% on top of the 2.04% you’re already paying. Finally, other fees such as short-term trading fees, which are fees if you sell or switch out of the fund in a short period of time are applicable. The next fund we’ll look at is the Dynamic Power Canadian Growth Fund, series G. Series G has a trailing commission that pays the advisor on an ongoing basis and has multiple load options. There is a front-end sales charge option, a deferred sales charge option, and a low load sales charge. I’ll explain what these mean as we go through the sheet. There are multiple fund codes listed here, depending on which load option is chosen. The MER is 2.31%, $500 must be invested to start, and $100 needs to be invested every time you want to add new money. This fund can invest up to 49% of its assets in foreign securities. Interestingly, you can see that this fund’s top holding is both an American holding (in a Canadian equity fund) and a mutual fund itself. You’d have to go into the Dynamic Power American Growth Class, Series E mutual fund information to further determine what you’re actually holding in this Canadian equity fund. In the how much does it cost section, you can see the various sales charge options. The first one listed is the Deferred Sales Charge. This means that if you sell out of this fund within 1 year of purchasing it, you’ll have to pay 6% of the fund value at the time of sale to the fund provider as a penalty reducing your sale proceeds. If you sell after holding it for 4 years, but not a full 5 years, you’ll have to pay 4% of fund’s value in penalties to get out. With all DSC funds, you can redeem up to 10% of the investment without paying this fee, so there is (some) leeway. The second sales charge option listed is a low load sales charge. This is similar to a Deferred Sales charge, but a little bit less punitive when selling. If you sell during the first year and a half, you pay 3% of the value in fees at the time of selling, and between a year and a half and three years, you pay 2% in fees upon selling. After that, there are no fees for selling the fund. We don’t see the initial sales charge option here, so your advisor would have to indicate at the time of purchase the percentage fee they are charging up front. The trailing commissions are also different depending on which sales charge option is selected. Your advisor will receive between 0% and 1% of the value of the investment each year for a front-end sales charge, between 0% and 0.50% of the value each year for the DSC option, and between 0 and 0.5% for the first two years with the Low Load option, and 0% to 1% after two years. As with the RBC fund, you don’t have to pay these fees on top of the MER, they are included in the fund’s MER of 2.31%. With this fund, you can see that its trading expenses are much higher at 0.22%. It is more active than the RBC fund and incurs more expenses (ultimately paid by you). Finally, we’ll look at a no-load F-class fund, the TD Canadian Index Fund – F-series. Similar to the others, this fund can purchase up to 30% in foreign securities. This fund provides a bit more information, outlining the specific amount of investments in the various asset classes. While the fund can hold up to 30% in foreign securities, most of the fund is currently being held in Canadian securities. Included in all fund facts sheets is the risk rating of the fund, and the past performance, as shown here. The worst and best 3-month returns are included to show the variability of returns you may see when holding this fund. Again, under the how much does it cost section, you can see that this is a no-load fund with no sales charges The MER and TER are included, the lowest out of my examples, which makes sense since this is an index fund. Finally, this fund does not pay a trailing commission to the advisor for purchasing and holding the fund in your account. Like most mutual funds, a short-term trading fee and switch fee may be incurred. There you have it. An overview of how you can read a mutual fund’s fund facts to determine the relevant information about what you’re investing in, and what you’re paying. If you have any questions, please let me know in the comments below. And thanks to Yiwei Song for requesting this on my previous video “What fees you pay when investing in mutual funds” (sorry if I mispronounced your name). Be sure to subscribe so you don’t miss any new episodes, posted here and on YouTube every other Wednesday. Share: Facebook Twitter LinkedIn Email