Asset under management

The total amount of assets the unit holders possess within a fund.

Bonds

Debt obligation issued by a company, municipality, government or government institution. Hence, when you hold a bond, the issuer recognises that it owes you a certain amount of money. The investor who commits to a bond generally receives interests regularly, called coupon, and also collects the initial value of the investment when the bond comes to term. Bonds are considered as fixed-interest securities.

Capital growth

This is a mutual fund category that aims at increasing your long-term capital. To do so, the investor needs to hold a relatively extensive investment horizon.

Capital protection

When committing to funds that guarantee a high degree of protection, one cannot expect significant upward or downward yield fluctuations.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Index

The market evolution measurement. The index is based on the fluctuation of several securities. For example, the S&P/TSX indexes represent the fluctuation of more than 200 securities at the Toronto Stock Exchange. In Canada, many equity index funds must follow the S&P/TSX composition. The yield generated by these funds is thereby similar to the index.

Intrinsic value

A company's total value calculated in part using accounting data.

Liquidity

The readiness with which a security can be easily and quickly sold into the market. This product can be easily bought and sold.

Management fees

All mutual fund managers charge management fees to their clients, which consists of a percentage of the mutual fund's asset value. These fees therefore reduce your portfolio's performance.

These management fees are used to pay the manager's salary as well as other expenses such as promotional, accounting and legal fees. The fund's prospectus must provide information on the subject. It is also possible to access information about these fees on mutual fund corporation Web sites and in various documents published by these corporations.

Mandates

Each fund meets a clear objective and plays a specific role. For some managers, capital growth is fundamental, whereas for others, preserving this capital is essential above all. With regards to asset categories, some funds are only comprised of shares or bonds, or both. Other funds combine small, large, or even, medium-size business securities. Some existing funds consist of shares solely linked to international corporations, in the United States, in Europe and other countries, whereas others build on investments made exclusively in businesses located in specific regions, like Quebec or Latin America for example. There is a wide variety of funds; each set out to achieve a specific goal or to cater to a particular geographical location. Management styles can vary dramatically, even within the same category of funds. Some very conservative managers seek securities capable of resisting any stock market fluctuation while others, more daring, look for securities destined to grow quickly.

Mortgage-backed security

It consists of a security comparable to a bond. Each unit is worth $5000 and has a five-year maturity date. The monthly payment includes interest and a portion of the capital.

Mutual investment fund corporations

An investment company that issues funds and is forced to buy back these funds at the holder's request. For example, Mackenzie, Fidelity and CI are all mutual fund corporations that have been catering to the Canadian market for several years. Canadian banks are also amongst these corporations, because they also offer this type of product.

Preferred dividend funds

A unit category that provides its holder with specific rights known as fixed rate dividends (income) paid out as a priority compared to common equity mutual funds, which are often cumulative and include privileges in the event of liquidation. This type of unit can include some restrictions, such as a restraint pertaining to the voting right.

Prospectus

Legal document that presents a mutual fund's features and objectives in a detailed manner

Revenue stream

Some funds allow for investors to receive distributions on a regular or irregular basis. This is the case for some balanced funds, bonds and income trusts.

Volatility ratio

Volatility rather refers to a mutual fund's capacity to fluctuate. There are several ways to measure a mutual fund's volatility, standard deviation being one of them. Standard deviation is used to measure performance variations. The higher this variable is, the more yields tend to fluctuate. It is important to recognise that standard deviation does not measure risk perfectly. For example, a mutual fund that gains 5% yield during four consecutive years holds the same volatility ratio than one that gains 5% yield in the same period. Therefore, to refer solely to standard deviation to determine a mutual fund's volatility ratio can be misleading.It is also possible to assess a mutual fund's volatility based on its yearly results. For example, a mutual fund that displays returns per annum of 10%, -15%, 25%, -5% is more volatile than another fund that gains returns per annum of 8%, 12%, 1% and 5%.

All mutual fund categories have their own volatility ratio, which is measured according to the following criteria: very low, low, average and high. Needless to say that it is difficult to be specific when measuring a particular category's volatility. The mutual fund industry is broad, as volatility fluctuates considerably from one fund to the next even within the same category or sub-category. The mutual fund manager's approach, or the mandate he was entrusted with, will strongly impact the volatility ratio.

Share

Title of ownership of a corporation. Companies issue shares to finance themselves. By directly or indirectly holding a share relating to a fund, you in fact become a shareholder or an owner within this company. Share prices fluctuate according to variations in the investors' demand and supply. 

Stock market

Organisation that provides facilities and technical support for buyers and sellers, who, through a bidding up process, can negotiate securities in a context that ensures adherence to certain rules. Canada's main stock market is located in Toronto. Securities from large Canadian businesses, such as the Bank of Montreal, Bombardier, Manulife and BCE are bought and sold there. Securities from smaller companies are traded on the Toronto Venture Exchange. 

Treasury bill

Short-term evidence of debt issued by the government. This type of investment is very safe. The rate of return attributed to a Treasury bill is relatively low.