Mutual funds investing in mutual funds

Q: I recently had a conversation with a financial adviser who suggested I look into buying a mutual fund that invests in other mutual funds. Would I pay double the fees?

—Jim Ketcheson, Ottawa

A: A “fund of funds” sounds a bit like those cheesy multi-level marketing schemes where every salesperson up the chain gets a commission on the final sale. Thankfully these products don’t work that way: there’s no doubling up on fees. “The investor pays the MER [management expense ratio] on the fund the investor owns, not the aggregate of all MERs contained in the mutual fund,” says Jon Cockerline, director of policy and research at the Investment Funds Institute of Canada.

Fees can have a big impact on your returns over time, so it pays to know what you’re paying. You can look at the fund prospectus to find its MER and feel confident that’s what you’re paying, regardless of whether it is a traditional mutual fund or a fund of funds.

Bruce Sellery is a contributor to CBC TV’s Lang & O’Leary Exchange and the author of Moolala. Do you have your own personal finance question? Write to Bruce at [email protected].

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.