Mutual Fund: A mutual fund is a pool of savings that are contributed by many invevestors, sometimes included with large institutional investors money and are professionally managed by a mutual fund manager on behalf of all the investors. Mutual Funds offer a simple way to take advantages of the resources of a professional money manager who will make sure the is affordable and there is diversification among different asset classes, sectors, industries and across geographical boundaries. There are many systems and philosopies of investing, there is a balanced approach and a targeted approach as today there are over 120 Investment Dealers and 1800 independent mutual funds available and are organized by category, industry and geography. A mutual fund prospectus will lay out the overall objective of the fund and is always neccessary reading to understand what you need to know.

Investing in Mutual Funds

* Professional investment management at an affordable price.

* Safety through diversified portfolios

* Broad choice of funds to meet virtually any investment objective

* Easy facilitation to buy, sell, exchange or redeem funds

Investor Protection

In addition to the security that comes from owning a well diversified portfolio, it is important to remember that while mutual funds are not guaranteed, the mutual fund industry is heavily regulated.

The assets of a mutual fund are owned by the investors in the fund. by law, the fund's the fund's investments must be held by a cusotdian which is generally a Canadian Charered Bank or a Canadian Trust Company. The fund manager may not under any circumstances borrow or otherwise invest the fund's assets for it's own purposes.

The main types of mutual funds are money market funds, bond funds, equity funds, dividend funds, mortgage funds and real estate funds. Within these broad categories are many smaller sub-categories. For example, there are many different types of equity funds that differ by level of risk as well as index funds, which track a particular market index (e.g. the S&P TSX index).

• Balanced funds consist of a combination of the main categories listed above and provide a means of further managing risk through fund diversification.
• Money market funds invest in short-term money market instruments such as Treasury bills, commercial paper and short-term government bonds. They represent low risk and high liquidity, but also earn a lower rate of return than other funds.
• Bond funds invest in government and corporate bonds with the objective of generating income and maintaining the safety of principal.
• Equity funds invest in common stocks issued by companies, primarily with a view to generating capital gains. Equity funds have a higher risk than money market or bond funds, but also provide the greatest potential for high returns. Equity funds are seen as good long-term investments such as, historically, common stocks have performed better than bonds and money market instruments over the long term.
• Dividend funds invest in preferred shares and common shares paying dividends in order to take advantage of the dividend tax credit as well as potential capital gains.
• Mortgage funds invest mainly in mortgages on residential units but may also include mortgages on commercial and industrial property, while real estate funds invest in income-producing real property. Mortgage funds offer income and safety while real estate funds offer long-term growth through capital appreciation.

Two innovations that are becoming increasingly popular are clone funds and wrap accounts. Clone funds are 100-per-cent RRSP-eligible funds that allow investors to mimic the return of actively managed foreign mutual funds. Wrap accounts are accounts where brokers manage groups of investments consisting of stocks, bonds, cash and mutual funds for a set annual fee, rather than receiving fees on a transaction basis.

Equity Funds made up 55 per cent of all mutual funds in December 2001, followed by balanced funds at 16 per cent and money market funds at 15 per cent. Within equity funds themselves, about half of the assets were invested in foreign common shares and half in Canadian common shares. over 64 per cent of all mutual funds are in some sort of international or offshore investment in December 2006.