The structure of a mutual fund has a number of significant advantages for investors that may not be clearly understood.
A common misunderstanding about mutual funds is to classify funds, in general, as either good or bad. This categorization has nothing to do with the fund structure, but what investments the funds hold and what fees are charged.
Let’s focus on the fund structure and consider the many advantages it offers.
Owning investments is all about good governance, transparency and timely accurate accounting.
Virtually all aspects of a mutual fund are subject to Canadian securities laws that require the full disclosure of investment objectives, risks and fees.
Disclosure documents include a prospectus, fund facts, and financial statements, among other documents, outlining what investors should know about their investment.
Another benefit is that a separate company is responsible for the custody of assets. Neither the fund manager nor the portfolio advisor handles assets of the fund. The custodian handles all trades, holds the cash and securities.
The separation of duties between the fund company and custodian offers investors necessary checks and balances to protect their investment.
Fund accounting and record keeping is critical. At the end of each business day the net asset value per unit of the fund is calculated. Fund units purchased or sold during the day are done at the closing price.
Having one specific price for all transactions to be based on is far more attractive than the bid-ask spread that is typical with other forms of investments.
There is an independent auditor that audits the financial statements of the fund which provides accurate reporting to unit holders.
Mutual funds must also have an independent review committee, and all conflict of interest matters are reviewed by it.
The structure of the mutual fund offers many advantages and should be seriously considered by all investors whether small or large.
Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI). ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments
