Index Funds

Index Funds are mutual funds which are passively managed that attempt to mirror the performance of a specific stock or bond market index.†

In Canada, index funds are available that mirror the S&P/TSX Composite Index, the S&P/TSX 60, the S&P 500 Index, the DEX Universe Bond Index, DEX Universe Federal Bond Index, the MSCI EAFE Index, the Nasdaq 100 Index, the JP Morgan Global Government Bond Index and other indexes.

Index Fund transactions within the fund are not frequent, and do not require research.† As a result the portfolio management is simpler and the associated trading costs and expenses of the fund are much less.† Index funds in Canada have significantly smaller management expense ratios (MERs) than regular mutual funds.†† In addition, most index funds do not have front end commissions or deferred sales charges.†

Research has shown over the last decade that close to seventy five percent of active equity fund managers underperform the market index.† However, in many cases the associated risk and volatility of index funds is greater than the average equity fund.† Investors need to educate themselves about the wide array of index funds and index fund type products available in the marketplace and see whether there is a fit in their personal portfolios.†

Many index funds in Canada can be bought on a no-load basis, however most have an early trading charge to discourage investors from trading the index fund like individual stocks or securities.

Mutual funds in Canada are highly regulated, and performance data is easy to acquire. Mutual funds are issued by prospectus and it is important to note that returns are not guaranteed and principal is not guaranteed.† Unit values fluctuate in value and investors may pay commissions to buy and/or redeem and sell mutual funds.† Investors should always read the prospectus prior to making an investment into a mutual fund.

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