The ATB Wealth Investing Fundamentals Guide
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Investing and Saving
What are mutual funds and how do you invest in one?
By ATB Wealth 20 October 2026 4 min read
It’s a common misconception that mutual funds are complex and confusing. In reality, mutual funds are a simple and accessible option for people who may not know a lot about investing or don’t want to spend hours managing their own investments.
But before you jump into investing in a mutual fund, you should understand where your money is going and how it would earn returns. In this article we’ll review what a mutual fund is, how it works, and the benefits of investing in one.
What are mutual funds?
In the simplest sense, a mutual fund holds a collection of securities (like stocks, bonds, and other assets) managed for a group of investors by a financial professional.
Instead of purchasing individual securities on your own, mutual funds allow you to access a wide variety of securities by pooling your money with other investors. When you buy into a mutual fund, you own a portion of each of these investments. You can choose from different mutual funds based on your risk tolerance and ability to weather the ups and downs of the market.
A mutual fund's risk and return features depend largely on its underlying holdings, including the ratio of stocks (also called equities) to bonds and cash or cash equivalents.
- Bonds are debt instruments issued by governments and corporations. They act like official IOUs and pay regular, predictable interest over a set period and return your original investment when the term ends, making them a steady, lower-risk investment.
- Stocks, by contrast, represent ownership in a company. Their prices fluctuate constantly based on corporate earnings, economic shifts, market news, and investor sentiment. While stock-heavy investments carry more short-term risk and volatility, they also deliver the higher potential for long-term growth.
Every mutual fund carries a degree of risk and will have varying exposures to various types depending on its underlying assets. Broad market drops can lower the fund's value, while industry downturns hit specific sectors harder. Changing interest rates affect bond prices, and political or regional instability can disrupt international holdings. These risks are managed by a financial professional, generally called a portfolio manager, on your (and the other investors’) behalf for a fee. The portfolio manager aims to optimize returns within your specified risk tolerance. Learn more about the role and value of a portfolio manager.
Who should invest in mutual funds and why?
Mutual funds provide an excellent opportunity for anyone that is just learning to invest. This is particularly true if you don't have a lot of money available to invest but still want to have diversity in your portfolio.
If you prefer leaving decisions to the pros, consider an actively managed fund. Unlike passive funds (which automatically track a market index), active mutual funds and exchange-traded funds (ETFs) have professional managers selecting investments for you.
Accessible to anyone 18 and older, mutual funds offer a wide range of strategies and risk levels, making them a versatile choice for every life stage. If you're working toward long-term milestones—like buying a home or funding retirement—they allow you to grow your money effortlessly without having to become a financial pro.
How do you earn money from a mutual fund?
Like any investment, the purpose of a mutual fund is to earn money for your future self. Mutual funds grow in a few different ways depending on the different underlying investments of the fund:
- Dividends and interest: Funds generate income from stock dividends and bond interest, which is passed along to you as a payout (called a distribution). You can choose to collect this income as cash or automatically reinvest it to buy more fund units.
- Capital gains distributions: When a fund manager sells an investment within the portfolio for a profit, those earnings are passed on to you as a capital gains payout.
- Price appreciation: As the value of the underlying investments in the fund increases, so too does the value of the fund and the value of your units. You lock in that growth as a profit whenever you decide to sell your units.
How do you invest in a mutual fund?
It used to be that the only way to purchase a mutual fund was to go directly through a financial professional. Today, things are much less complicated, and you can invest in a mutual fund online. Mutual funds can be purchased from a brokerage, an investment company or a financial institution.
Are mutual funds safe?
With any investment there are risks. But you can select from different funds based on your risk tolerance, which is a measurement of how comfortable you are with market volatility. If your first instinct is to sell your investments during a dip in the market, you may want to consider a fund that contains less risky investments, such as investment-grade bonds. Learn more about investment risk with this article.
When comparing different mutual funds, it's important to review their performance and management fees. Consider using Morningstar to compare mutual fund investment options. Before you compare, be sure the mutual funds you review have similar risk levels.
Will I be charged fees?
Because your fund is being professionally managed, a management expense ratio (MER) and trading expense ratio (TER) are deducted before your net asset value and returns are calculated. Check out this breakdown of investing fees for more.
When comparing funds, we recommend looking at the MER and any other fees to see whether it's a reasonable cost. In Canada, management fees typically range from 0.1–2%.
How can I get started?
To start investing in a mutual fund, you must begin with the initial investment minimum specified by the fund company. For example, you can start investing in a CompassTM Portfolio mutual fund through ATB Prosper with $100 and subsequent contributions can be as low as $25.
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