Mutual fund asset class categories
What are the main types of funds?
The ScotiaFunds line-up includes a broad range of funds that fall into five main categories - cash equivalent, income, balanced, equity, and index funds.
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Cash equivalent funds
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Income funds
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Balanced funds
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Equity funds
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Index funds
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Cash equivalent funds
Cash equivalent funds, also known as money market funds, invest in short-term debt instruments such as treasury bills and other high-quality debt like commercial paper. These funds can provide you with some interest income and liquidity, while maintaining a high level of safety for your investment. The income provided by these funds is variable and typically lower than mutual funds that invest in longer-dated bonds and other fixed income investments. Offering a high degree of safety and liquidity, they are best suited for investors who are focused on preserving their capital, have a short time horizon and a low risk tolerance. Cash equivalent funds can be used as a short-term parking spot prior to investing in longer-term or higher risk investments, such as income or equity funds.
Did you know?
While money market funds are not guaranteed, they try to maintain a fixed daily price or Net Asset Value (NAV). Only on rare occasions does the daily price fluctuate.
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Income funds
Income funds, also known as bond funds, invest in a diversified portfolio of debt instruments such as bonds issued by Canadian federal and provincial government as well as bonds issued by Canadian corporations. These funds can provide you with regular interest income and the potential for modest capital growth by investing in bonds of varying maturities and credit quality. Income funds with a global focus will invest in bonds issued by foreign governments, corporations and other entities. Unlike cash equivalent funds, income funds can invest in bonds with longer maturities or different creditworthiness in order to generate a higher level of income for investors. They are best suited to investors who are focused on generating a higher level of regular income from their investments and are willing to accept a moderate amount of risk in pursuit of that goal.
Did you know?
Bond prices don’t rise and fall in tandem with stock prices as some of the factors that determine their value are different. In addition to their income characteristics, bond funds are a key component of a diversified portfolio, offering investors a cushion against stock market volatility.
Bond basics
Fixed income can be an intimidating asset class and there’s no shortage of terminology. Here’s a few introductory bonds terms.
Coupon: the interest payment received by the bondholder throughout the life of the bond, typically semi-annually.
Coupon rate: the interest rate, set when the bond is issued, that determines the coupon payment over the life of the bond.
Maturity: the length of time until the bond comes due and the bondholder receives the par value of the bond.
Principal/Par value: the face value of the bond, typically the amount originally loaned to the issuer, as well as the amount returned to the bond holder at maturity. A bond can trade below (discount) or above (premium) to its par value.
Credit quality: the likelihood that the bondholders will receive the amounts promised at the due dates.
Duration: measures a bond’s price sensitivity to changes in interest rates.
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Balanced funds
Balanced funds invest in a diversified mix of bonds (also known as fixed income) and stocks (also known as equities) in the convenience of a single mutual fund. Like their name suggests, these funds will maintain a suitable and typically steady balance across both asset classes. These popular mutual funds can provide you with a balance of income and long-term growth potential by investing in a blend of fixed income and equity securities. Some balanced funds may have a larger target weight in bonds, while others may have a slightly higher allocation to stocks. Moreover, some balanced funds may focus on global markets, giving investors an additional source of diversification. To invest in balance funds, investors should be comfortable with moderate fluctuations in the value of their investments. As a result, balanced funds are best suited to investors who have a longer time to invest, usually at least 3 to 5 years.
Did you know?
At ScotiaFunds, a team of experienced portfolio managers will select, manage and monitor the investments within each balanced fund to manage risk and return potential. There are balanced funds to suit a wide variety of investor needs and preferences, including income focused, U.S. dollar dominated and low carbon options to name a few.
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Equity funds
Canadian equity funds
Canadian equity funds, also known as Canadian stock funds, invest primarily in a mix of Canadian equity securities. These mutual funds can provide you with long-term growth potential by investing in a diversified portfolio of Canadian equities. The funds are appealing for their long-term growth potential, although this potential comes with additional risk beyond what is customary for income and balanced funds. Canadian equity funds typically include securities from a variety of sectors and industries to provide investors with added diversification and growth potential. Depending on the focus of the fund, they may hold large, medium or smaller company stocks or a combination of all three. Given the higher risk tolerance associated with these funds, they are best suited to long-term investors with at least 5 years to invest.
Did you know?
Some Canadian equity funds emphasize dividend-paying stocks, which may be appealing to income-seeking investors, while others may focus on the growth opportunities of a specific sector or industry, such as natural resources. For ScotiaFunds, experienced portfolio managers select, actively manage and monitor the individual securities within each fund to add value and reduce risk.
View canadian equity fundsGlobal equity funds
Global equity funds, also know as global stock funds, offer investors additional sources of diversification and return potential beyond the Canadian market. Global equity funds have the broadest geographic exposure, typically spanning the U.S., Europe, Asia, Canada and developing or emerging market economies. These mutual funds can provide you with long-term growth potential by investing in a diversified portfolio of global equities from a variety of geographic regions.
These funds are appealing for their long-term growth potential, although this return potential comes with additional risk beyond what is customary for income and balanced funds. Contrasting Canadian equity funds, global equity funds provide a larger universe of investment potential but may also be subject to currency and other risks. For actively managed ScotiaFunds, experienced portfolio managers select, manage and monitor the individual securities, sector and geographic allocations within each global equity fund to add value and reduce risk. Given the higher risk tolerance associated with equity funds, they are best suited to long-term investors with at least 5 years to invest.
Did you know?
The U.S. has the largest stock market, accounting for over 50% of world stocks. Japan, China and the UK are all in the top five of largest stock markets worldwide. No single asset class, country or regional stock market is consistently among the top performers, and the best and worst performers can often change from one year to the next. A diversified portfolio of different asset classes, including global equities, offers the potential to participate in the gains of stronger performing investments while aiming to lessen the impact of losses or underperformance from others.
View global equity fundsInternational equity funds
International equity funds, also know as international stock funds, offer investors additional sources of diversification and return potential beyond the Canadian and U.S. markets. International equity funds typically invest in Europe, Asia and/or developing or emerging market economies. These mutual funds can provide you with long-term growth potential by investing in a diversified portfolio of equities from outside North America.
These funds are appealing for their long-term growth potential, although this return potential comes with additional risk beyond what is customary for income and balanced funds. Contrasting Canadian equity funds, international equity funds provide a larger universe of investment potential but may also be subject to currency and other risks. For actively managed ScotiaFunds, experienced portfolio managers select, actively manage and monitor the individual securities, sector and geographic allocations within each international equity fund to add value and reduce risk. Given the higher risk tolerance associated with equity funds, they are best suited to long-term investors with at least 5 years to invest.
Did you know?
Investing in international equity funds provides investors with exposure to the growth potential of companies outside of North America. Some may focus on a single region, such as Europe, while others can invest more broadly. No single asset class, country or regional stock market is consistently among the top performers, and the best and worst performers can often change from one year to the next. A diversified portfolio of different asset classes, including international equities, offers the potential to participate in the gains of stronger performing investments while aiming to lessen the impact of losses or underperformance from others.
View international equity fundsU.S. equity funds
U.S. equity funds, also known as U.S. stock funds, offer investors additional sources of diversification and return potential beyond the Canadian market. These mutual funds can provide you with long-term growth potential by investing in a diversified portfolio of U.S. equities.
These funds are appealing for their long-term growth potential, although this return potential comes with additional risk beyond what is customary for income and balanced funds. Contrasting Canadian equity funds, U.S. equity funds provide a larger universe of investment potential but may also be subject to currency risk. For actively managed ScotiaFunds, experienced portfolio managers select, manage and monitor security selection within each U.S. equity fund to add value and reduce risk. Given the higher risk tolerance associated with equity funds, they are best suited to long-term investors with at least 5 years to invest.
Did you know?
The U.S. has the largest stock market, accounting for over 50% of the world stocks. Over the years the size of the U.S. stock market has gradually increased in size due to a strengthening U.S. dollar and gains in American equities. When compared to more conservative asset classes like bonds, its performance can vary more significantly over short periods. However, over longer periods (five years or more) the difference between the highs and lows shrinks considerably.
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Index funds
Index funds, also known as passively managed funds, offer investors broad exposure to a specific stock market or fixed income market by closely tracking the performance of a recognized market index. Unlike actively managed mutual funds, there is no active selection of individual stocks or securities and the risk and return characteristics of the index fund are limited to those of the particular index it tracks. Equity indices like the S&P/TSX Composite Index or S&P 500 Index will generally have more risk than a broad based fixed income index such as the FTSE Canada Universe Bond Index, but less than a more narrowly defined sector index such as the technology-focused Nasdaq 100 Index.
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