Balanced funds are the most popular type of mutual fund in Canada, holding about 43% of total mutual fund assets.2 They combine stocks and bonds in a single fund, which can be a simpler entry point for investors who want both growth and potential stability.
How to invest in mutual funds
June 22, 2026
By Sun Life staff
Mutual funds are one of the most common ways Canadians invest. Learn how they work, how to choose one, and how to start with confidence.
Mutual funds are one of the most common ways Canadians invest for long-term goals like retirement, buying or renovating a home, or funding a child’s education. About 4.9 million Canadian households own them.1
Getting started involves two key decisions: selecting a fund and choosing the right account. Your account choice - registered or non-registered - can matter as much as the fund itself. This article covers what mutual funds are, how to select one that fits your goals, and how to choose the right account to hold it in.
Key takeaways
- A mutual fund pools your money with other investors and invests it across a mix of stocks, bonds, or other securities.
- The right fund depends on your goal, time horizon, and comfort with risk. The account you hold it in (registered or non-registered) can matter just as much as the fund you pick.
- Understanding what you’re buying and what it costs, especially the management expense ratio (MER), helps you make an informed choice that fits your goals.
What's a mutual fund?
A mutual fund lets you invest alongside many other people in a fund with a shared investment objective. Your money is pooled with theirs and used to invest in a mix of stocks, bonds, or other investments based upon the fund’s investment strategy. As an investor, your share of the fund’s gains or losses depend on how much you invest.
Mutual funds are either actively or passively managed. In an actively managed fund, a professional management team makes investment decisions, so you don’t have to manage individual investments yourself. In a passively managed fund, the fund tracks a benchmark like a market index. Instead of making active decisions, it aims to match the benchmark. So when you invest in a mutual fund, you’re buying units or shares of a fund. You don’t own the underlying stocks or bonds directly.
How is it different from buying individual stocks?
When you buy a stock directly, you own a share of one company. Individual stocks don’t charge ongoing management fees, but you must do all the research and take on the full risk if that company’s value drops, your investment drops with it.
In contrast, a mutual fund pools money from many investors to buy a variety of investments. Mutual funds charge fees because they provide two main benefits that individual stocks don’t:
- Professional management: includes research, selection, and monitoring of the underlying assets.
- Built-in diversification: spreads money across a wide range of investments. This lowers your risk if one investment performs poorly.
What are the main types of mutual funds in Canada?
Canadian mutual funds can come in different types, each with its own goal and level of risk:
- Equity funds invest in stocks. They aim for long-term growth but can have short-term ups and downs.
- Fixed-income funds invest in bonds and other interest paying investments. They aim for steadier returns and regular income.
- Balanced funds combine stocks and bonds. They’re a common starting point for investors who want diversification in a single fund.
- Money market funds invest in short-term, lower-risk securities. They’re designed to preserve capital.
Mutual funds are often grouped by their desired outcome – like growth, income, or a mix of both – rather than by type. Both views are helpful at different times when you’re reading a fund’s description or its Fund Facts. The outcome-based view helps you choose a fund that matches your goals. The type-based view helps you understand what a fund holds. Knowing both can make it easier to find the right match.
Which type is most common in Canada?
What’s the difference between active and passive mutual funds?
The main difference between active and passive mutual funds is how the investments within the fund are managed.
Active management means a professional team researches investments, manages risk and makes decisions aiming to meet the fund’s objective. The management fees on active funds reflect the cost of that research, analysis, and ongoing decision-making.
Passive management means the fund follows a market index instead of trying to outperform it. Because of this, passive funds typically have lower management fees.
When does it make sense to hold both active and passive mutual funds?
It can make sense when different parts of your portfolio benefit from different approaches.
For example, someone investing in their Tax-Free Savings Account (TFSA) might hold a passive Canadian index fund for their exposure to the Canadian stock market. Passively managed funds tend to work well in markets that are widely followed and well researched, where lower fees matter more than trying to pick winning investments.
For international markets where a professional team’s research and selection may add more value, the same investor might choose an active global equity fund.
Keep in mind, someone else with different goals might choose a different mix of active and/or passive funds. The right mix depends on your goals, your comfort with risk, and how hands-on you want to be.
Which account to hold your mutual funds in: registered (e.g., RRSP, TFSA, FHSA) or non-registered?
Once you’ve chosen a fund, there’s a second decision: which account should you hold it in?
The account you choose can matter as much as the fund you pick. Different accounts have different tax treatments, and each is built for a different goal.
The decision usually comes down to two questions:
- What is this money for?
- When will you need it?
Here’s a quick summary:
- A Registered Retirement Savings Plan (RRSP) is built for retirement. Contributions may reduce your taxable income for the year, and your funds grow tax-deferred until you withdraw from it.
- A Tax-Free Savings Account (TFSA) is flexible. You can use it for any goal. Contributions aren’t tax-deductible, but investment growth and withdrawals are generally tax-free.
- A First Home Savings Account (FHSA) is designed to help first-time home buyers save for a qualifying home. Contributions are tax-deductible and qualifying withdrawals are tax-free.
- A non-registered account has no contribution limits. You pay tax on investment income earned and any profits when you sell your investments for more than you paid.
| If your goal is… | When you’ll need the money | Accounts that often fit |
|---|---|---|
| Retirement | 5+ years away | RRSP, TFSA, non-registered |
| Buying your first home | 1-15 years | FHSA, TFSA, or RRSP (via Home Buyers’ Plan) |
| A major purchase (car, wedding, renovation) | 1-5 years | TFSA, non-registered |
| General long-term savings | Flexible | TFSA, non-registered |
| Savings beyond registered account limits | Any | Non-registered |
The right account for your situation depends on your needs and goals. An advisor can help you decide. If you don’t have an advisor, Sun Life has a team of advisors that can help you decide.
Understanding mutual fund fees
Because you are paying for professional management and diversification, mutual funds charge fees that reduce your investment returns over time. These can include ongoing operating costs (like the management expense ratio, or MER), trailing commissions, and sales charges.
An advisor can help you review these specific costs and explain how they impact your overall investment goals and objectives. You can also find a complete breakdown of these fees yourself in every fund’s Fund Facts document. It’s a required two-page plain-language summary for every Canadian mutual fund that every Advisor must provide to you before you buy.
How to start investing in mutual funds
Here’s how to get started.
Step 1: Clarify your goal and time horizon. Are you saving for retirement in 30 years? A home in five? Your child’s education in 15? Your answer will help determine what mutual fund and which accounts to hold your mutual fund(s).
Step 2: Assess your comfort with risk. As a general rule, investors often balance their emotional comfort (risk tolerance) with their actual financial ability to handle a loss (risk capacity).
To help find your comfort zone, ask yourself: “How would I feel if my $1,000 investment dropped $900 in a single month?”
- Panicked (or you need this money soon): You may prefer more stable, low-risk mutual fund options. Even if you’re emotionally brave, a short timeline means your wallet can’t afford a dip.
- Anxious but willing to wait: You may lean toward moderate-risk balanced mutual funds. You can tolerate minor ups and downs because you don’t need the money right away.
- Unbothered and financially secure: You have a long-term milestone years away and plenty of savings. You may be comfortable choosing higher-risk mutual funds because both your emotions and your budget can comfortably tolerate the market ups and owns.
Once you know your risk style, there are two standard safety checks to make sure your investments matches your situation:
- Know your Client (KYC): A profile of your identity and goals that every investor has to complete. If you use an advisor, they use this profile to suggest funds. If you buy online by yourself, you use it as your own personal guide.
- Know your Product (KYP): Check the details of the fund itself (like fees and risks). An advisor can help you with this, but if you’re a DIY investor, you can also do your own KYP by reading the Fund Facts document before you buy.
Step 3: Choose the right account. Your goal and time horizon can help point you toward holding the mutual fund(s) in an RRSP, a TFSA, an FHSA, or a non-registered account. Revisit the account section if you need a refresher.
Step 4: Read the Fund Facts document. All Canadian mutual funds sold to the public are required to have one. It tells you the fund’s objective, risk rating, MER, past performance, and top holdings.
Once you start looking at specific mutual funds, you’ll notice the same fund name often appears with different letters after it – Series A, Series F, Series O, and others. These “series” or “classes” are designed to provide different costs and features for investors and/or different compensation arrangements for the advisors that sell the fund.
Here are a few you’re most likely to come across:
- Series A – typically designed for investors who buy through an advisor, with the cost of advice built into the fund’s fees
- Series F – typically designed for investors in fee-based advisor arrangements, where you pay your advisor separately for advice
- Series O – typically designed for larger or institutional investors, often with a different fee structure
Series letters aren’t standardized across fund companies, so the same letter can mean slightly different things depending on who’s offering the fund. The best way to know exactly what you’re buying is to check the Fund Facts document for that specific series or ask your advisor to walk you through the options.
Learn more: Sun Life’s mutual fund series explained on Sun Life Global Investments
Step 5: Decide how you want to buy. You can invest in mutual funds through a dealing representative, a branch at a financial institution, or a self-directed platform. Each channel offers access to different funds. Not every mutual fund is available through every channel. Sun Life mutual funds are sold through many organizations, including through Sun Life advisors.
Step 6: Set up a pre-authorized contribution (PAC) plan. A PAC plan automatically transfers money from your chequing account into your investment account to purchase mutual funds on a schedule you choose. This makes investing consistent and removes the need to time the market.
Step 7: Review once per year, or after major life changes. Check that your investments still match your goals. Major life changes (a new job, marriage, a home purchase, a child, retirement, etc.) are good triggers for a review.
Are mutual funds right for you?
Mutual funds aren’t the only way to invest. Here’s a quick way to think about whether they fit what you’re looking for.
Mutual funds may be a good fit if you:
- Like the idea of a professional team making day-to-day investment decisions for you
- Want to contribute regularly and automatically, without worrying about timing the market
- Value having an advisor to help guide your choices
- Are investing for a long-term goal and want to stay consistent without overthinking it
- Are starting with smaller amounts and want built-in diversification from day one
They may be less of a fit if you:
- Prefer to pick individual investments and manage your own portfolio
- Want to buy and sell throughout the trading day
- Are looking for exposure to a very specific, narrow asset class not available in fund form
- Are looking for a guaranteed return rather than market exposure. For example, a guaranteed investment certificate (GIC)
Frequently asked questions
How long you hold a mutual fund for depends on your investment goals.
For long-term goals (like retirement): Many investors may hold mutual funds for 5+ years or longer to allow for potential growth and smooth out market movements.
For short-term goals (1-3 years): Some investors may hold more conservative mutual fund options.
Need more help? An advisor can help evaluate your specific timeline, risk tolerance, and goals to determine how long you should a mutual fund, and which mutual fund works for your portfolio.
Most mutual funds are open-ended. This means you can sell your units at any time. Keep in mind that selling during a market downturn can result in a loss. Some funds may also charge a short-term trading fee if you sell within a certain period.
An annual review is a reasonable default. You may also want to review your investments after major life changes like a new job, marriage, a home purchase, a child, or retirement. An advisor can help you decide whether any adjustments are needed.
How a Sun Life advisor can help
For more than 160 years, Sun Life has helped Canadians make sense of decisions like these. A Sun Life advisor can help you:
- Match a fund to your goal and life stage
- Walk through the trade-offs between accounts and fund types
- Review your existing investments alongside any workplace plans
- Connect the dots with your broader financial picture, including insurance, retirement and estate planning
Enter your postal code to find an advisor near you.
Already a Sun Life Client?
If you already work with a Sun Life advisor, they’re the best person to talk with about mutual funds. They know your situation and can build on what you already have in place.
This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.
