This is a part of the Investing Series.
An extremely elusive answer to find on the web, so I spent a few minutes on the phone grilling a TD Mutual Funds representative today.
Information is valid as of January 2nd 2013.
They are NO-LOAD Mutual Funds which means they do not charge you a fee to either BUY or SELL mutual funds.
I was incorrectly informed on the phone that they would NOT take the MER of your portfolio each day if you didn’t make a profit.
Then I emailed to clarify and got the following:
Update: IN TD FINANCIAL SPEAK-EASE (as of 2012 Dec 29th)
Management fees are charges to the mutual fund for the services provided by the manager of the fund.
All mutual funds charge management fees.
The fee generally ranges from 0.3% to 3%. This is how mutual fund companies earn their revenues.
Management fees are quoted as “up to X%” per annum of the net assets of the fund. This means that the fund company has the ability to charge up to X% but it may choose not to do so.
The fees are deducted from the value of the portfolio on daily basis before the NAV (unit price) is calculated.
The management expense ratio (MER) is the ratio between the sum of the management fee plus all other fund operating expenses incurred by the fund, versus the portfolio value.
The MER is calculated as of December 31 of each year therefore, the MER is an historical value.
“Other fund operating expenses” may include legal fees, custodial fees and auditing fees.
Update 2: Another update said plainly… (as of 2013 January 2nd)
We apologize for the incorrect information you received from the phone agent.
(This is why I hate talking on the phone to these people or seeing them in person. They’ll tell you anything because it isn’t their money, and they’re partly idiots. Having things IN WRITING is much better.)
The MER is deducted on a daily basis regardless of whether the fund increases or decreases in value.
You are charged your MER daily by TD Canada Trust on the value of your portfolio.
It is taken out of your account before they re-calculate the unit price.
The MER that is taken out, is based on the Dec 31 of the previous year’s set percentage, and is taken out of the entire bank’s portfolio at once, not from your individual, specific portfolio each day.
0.35% MER means that they take 0.35% of the entire assets of the portfolio, or out of the $422.78 million as of December 31st 2012.
0.35% x $422.78 million = $147.973 million a year, or $405,405.48 a day
You only pay a portion of that $147.973 million, based on how many units you own.
With TD Canada Trust in particular, they take the MER out on a daily basis, or out of the $405,405.48 that is charged to all investors, daily.
The exact amount, is still a mystery for each individual investor because they just take their $405,405.48 a a day out of the entire portfolio and then re-calculate how many units you have left as a result also known as the NAV (unit price).
DONE. END OF STORY.
It only took a phone call and 2 emails to get a clear answer.
This is the reason why looking at MERs in Mutual Funds and keeping them fairly low, are a good idea, or you will pay through the nose.
This is only in regards to TD Canada Trust (not TD Waterhouse because I haven’t talked to them nor do I ever want to ever again, although I daresay they probably operate the same way).
- The list of TD Canada Trust Regular Mutual Funds
- The list for TD Canada Trust Mutual Fund Cheaper E-Series (lower MERs, mostly index funds)
If you want to sign up for their cheap e-series TD Canada Trust Mutual Fund, I suggest you do the following for a no-hassle experience:
- You do not need to be a TD Waterhouse customer to buy e-series mutual funds!!
- Become a customer of TD Canada Trust (EasyWeb)
- Get a FREE no-fee savings account with them (no minimum balance required)
- Deposit money in there from your external bank account with a cheque & link the two accounts
- Open a TD Mutual Funds account (RRSP, TFSA, or Non-Registered)
- Ignore their pleas to buy their high MER, low return Mutual Funds
- Put all your money into your no-fee savings account with them so you’re ready to buy…
- ..or alternatively, you can also put that money into a Mutual Fund Bond Index or something you can sell easily without any additional fees (some funds, will charge you a 2% penalty fee if you sell within 30 days, e-series charges you a 2% penalty fee if you sell within 90 days)
- Convert that TD Mutual Funds account into an e-series Mutual Funds account with this form
- Note: Here’s a link that has all the TD Canada Trust forms in one shot
- Print and bring in the form(s) you’ve filled out and signed to your local TD Canada Trust Customer Rep
- Go to the Service Desk; you do NOT need an appointment with a Mutual Funds Advisor!
- Ask them to forward (internally) those forms to the address listed in the upper right-hand corner
- Repeat that it really is all they have to do, and nothing more than forward those forms
- You will need to fill out ONE form per Mutual Fund Account
- You can use the above form for all Mutual Funds (I did it for RRSPs and Non-Registered)
- Wait for the confirmation e-mail that welcomes you to the world of TD Mutual Funds E-Series
Read my books on investing and the tool