🇨🇦 Canada · 5 min read · Published 2026-09-07 · Updated 2026-09-07

Written by Jordan Reeves · Editorial review: automated source and figure checks (how we check this)

Sources last verified: 2026-09-07

Should I Hold Mutual Funds or ETFs?

Usually ETFs, because the difference that matters is cost rather than structure. Both pool money and both hold a portfolio, but Canadian mutual fund fees remain among the highest in the world and the gap compounds against you for as long as you hold.

60-SECOND ANSWER

Mutual funds and ETFs are structurally similar; the difference that matters over time is cost.

The answer:: Both pool investor money into a portfolio; ETFs trade on an exchange and generally carry materially lower management fees.
The trap:: Comparing a fund's stated return against an index without noticing the fee is already deducted from one and not the other.
The recommendation:: Check what advice you are receiving for the fee, because an embedded commission pays for service you may not be getting.

Jump to the detail ↓

Where the AI summary above gets this wrong

"ETFs are always cheaper than mutual funds."

That's surface-true. Here's what it misses:

Not always, but usually by a wide margin — Some index mutual funds are competitive; the typical actively managed Canadian fund is not.
Part of the fee pays for advice — Embedded commissions historically compensated the adviser, so the fee bought service as well as management.
Trading costs differ — ETFs are bought through an exchange with a spread and possibly a commission; mutual funds transact at end-of-day value with no spread.

→ See what a fee difference compounds to

01 What actually differs

Both are pooled vehicles holding a portfolio on behalf of many investors. A mutual fund transacts once daily at its net asset value; an ETF trades on an exchange throughout the day at a market price that can differ slightly from that value.

The structural differences are minor for a long-term holder. The cost difference is not: Canadian management fees on actively managed funds remain among the highest internationally, and the drag compounds every year — the arithmetic is in the true impact of MERs.

Source: Capital gains (line 12700)

02 What the fee has historically bought

A substantial part of a Canadian mutual fund's fee has historically been an embedded commission paid to the adviser who sold it. That means the fee purchased advice as well as portfolio management, which is a legitimate service where it is actually delivered.

Regulatory changes have altered how those commissions work, but the underlying question is unchanged: what advice are you receiving, and would you pay for it separately at that price? Where the answer is none, the fee is buying only management.

WORKED EXAMPLE · Try the numbers

Shows: what an amount becomes after your chosen number of years at a fixed return. Ignores: tax, fees, inflation, and any variation in returns from year to year.

Amount today ($)

Years

Return (%/yr)

Value at the end of the period

$57,435

$10,000 left for 30 years at 6% becomes $57,435 — the growth is 83% of the total.

Source: Capital gains (line 12700)

03 Where a mutual fund still wins

For small, regular contributions, a mutual fund transacts at end-of-day value with no bid-ask spread and often no commission, which suits an automatic monthly plan better than an exchange purchase.

Some low-cost index mutual funds are genuinely competitive with ETFs and remove the trading friction entirely. The location decisions for either are in asset location across accounts.

Switching between them in a non-registered account is a disposition, so a decision to move from a high-fee fund to an ETF realises whatever gain has accrued. Inside a registered account there is no such cost, which is why the change is usually made there first and staged over years in the taxable account.

Source: Federal dividend tax credit (line 40425)

The fee conversation in Canada is still worth having because the numbers are still bad by international standards. A percentage point a year over thirty years is not a rounding difference; it is a meaningful share of the final balance, handed over for a service many holders never receive.