Frequently Asked Questions

Q. Why should I invest in Mutual Funds?
A. Some of the main reasons are:
    - to achieve a more secure retirement;
    - to fund a major purchase, such as a house or cottage;
    - to pay for a child's education
Identifying your reason for investing will go a long way towards determining what kinds of funds in which you should invest. For a secure retirement, you may wish to build your capital for the future. A growth fund may be the best for you in that scenario. If you require a form of income from your investment, you will want to look into a fund that is going to generate income for you, such as a bond fund or a dividend fund.

Q. How much money do you need?
A. After determining your main reasons for investing, you should consider the amount of money that you will require to reach your goal. If you already have considerable capital and wish to preserve it while generating some income for yourself, a bond or income fund may be best for you. If you need to build capital, you may want to consider investing in a growth fund.

Q. How long will I have to invest?
A. Once you have determined your reasons for investing and the amount of money that you will require to reach your goal, you must determine how long you will need to reach your goal. Mutual Funds are intended to be long term investments, not speculative investments that are bought and sold frequently.

Q. How much risk should I be willing to take?
A. Determining your main reasons for investment, the amount of money you will require, and the time you will require to reach your goal are all indicators of risk tolerance. Another factor that influences risk tolerance is age. More often than not, an investor's risk tolerance will decrease with age, as investment objectives change.

As an example, if your goal is to preserve your already accumulated capital and generate some income for yourself immediately and throughout your retirement, you would want to choose an income-generating fund which invests in fairly conservative income-producing securities.

If on the other hand you are just beginning to build your portfolio and want capital growth for retirement or a child's education, you may consider investing in a growth fund which invests in equities that have good growth prospects. You can choose a number of different investment styles, ranging from conservative to aggressive. Keep in mind that the younger you are, the greater the emphasis will be upon growth, and generally, the higher the potential for gain in a fund, the higher the risk factor will be.

Q. What are the tax consequences of my investments?
A. Income from your investments is taxed in different ways:
    - Interest Income is fully taxed at your personal marginal tax rate.
    - Dividend Income generated by the funds that invest in Canadian dividend paying or common stocks, get a tax break in the form of a dividend tax credit.
    - Capital Gains encourages Canadians to invest in equities since only 50% of net capital gains earned are taxable.
Be sure to read the information within the prospectus in regards to taxation before you invest.

Q. What is Asset Allocation?
A. Asset allocation refers to dividing your investments among the three basic classes which are cash, bonds, and equities. For example, if your investment strategy is aggressive with a longer investment time frame (10-15 years), your portfolio may likely include more equity investments followed by a small percentage of bonds and some cash. (60%/35%/5%).

A moderate investment strategy with a shorter time frame (5-10 years) might include a continued emphasis on equities with increased bond investment and larger cash percentages (50%/40%/10%).

A conservative strategy with a time frame of 5 years or less might include a high percentage of bonds and cash, with less emphasis on equities (15%/45%/40%).

Q. Should I Diversify my investments?
A. Diversifying your investments is a good defense against risk. The wide range of funds available allow investors to diversify across asset classes, geographical regions, and industry sectors.

Asset Classes: Many funds invest in securities of a specific asset class such as stocks, bonds, and money market instruments. Objectives of these funds will differ and you should read the prospectus to ensure that a fund's investment objective matches yours.

Geographic Regions: These funds focus on investments in specific geographic regions or countries such as the Far East, Europe, Latin America, North America, and Asia. Funds such as these may hold a variety of securities from any one of those regions, such as company stocks or government bonds. Investors should note that mutual funds invested outside of Canada for their RRSP's or RRIF's are limited to a 30% foreign content limit on the amount of foreign property which can be held.

Industry Sectors: The funds favour securities from specific industry sectors such as financial services, precious metals/minerals, natural resources (oil, gas, paper/forest products), utilities, industrial products, and technology.

Q. What are the effects of compounding and/or reinvesting your distributions?
A. Most mutual funds will pay distributions at least once or several times throughout the year. Once determined, each shareholder will receive this amount for each share or unit that they hold. As an investor, you now have the choice of either taking this amount in the form of cash, or having it re-invested into your fund. (RRSP distributions are reinvested into the fund).

Q. Are there fees associated with buying a Mutual Fund?
A. All mutual funds charge an annual "management fee" for costs incurred in daily management of the funds. Information on fees pertaining to the fund is found in the funds' prospectus. This information must be provided to you by your Mutual Funds Investment Specialist either prior to the sale or at the time of the sale. It is always highly recommended that every investor read the prospectus before purchasing the fund.

Q. Where can I get more advice?
A. Drop in to any one of our 15 Niagara Credit Union locations to see a Mutual Funds Investment Specialist. They will be happy to discuss your investment options and provide any further information that you might require before investing. Credential Asset Management Inc. offers more than 2000 Mutual Funds for you to choose from. If you would like to contact us to make an appointment, you can email our Contact Centre for more information. If you wish to leave us your telephone number and general location, we can also refer you to a Mutual Funds Investment Specialist at one of our Branches within your area who will contact you via telephone.


* Mutual funds are offered through Credential Asset Management Inc., a wholly-owned subsidiary of Credit Union Central of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer which insures deposits in credit unions. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Labour sponsored Investment Funds offer 30% tax credit available to residents of Ontario. Tax credits are available to eligable investors provided that the shares are held for at least eight years from the date of purchase.

For more information and tips related to Mutual Funds, visit the Mutual Funds Investment Specialists or MemberCARE® sections.