No-load, low-fee mutual fund providers like Steadyhand are no doubt taking notice of RBC’s bold announcement today that it is significantly reducing the fund investment minimums for its D-series mutual funds—to $500 from $10,000. For fledgling investors just starting out, this is cause for celebration.
D-series funds, which have substantially reduced trailing commissions, are designed for do-it-yourself investors who want to use actively managed funds through a discount brokerage. The savings can be considerable compared to traditional A-series funds, which typically include trailing commissions of 1% and sometimes include front-end loads (an additional commission taken off your initial investment).
For example, the 2012 industry average Management Expense Ratio (MER) for a Canadian equity fund was 2.04%, while the MER for D-series units of the RBC Canadian equity fund was 1.21%. Assuming an investment of $25,000 for 15 years at a gross annual return of 8% for Canadian equity, this could offer an estimated savings of $7,397.
Quite remarkably, for as little as $500 anyone can now purchase an all-in-one D-series RBC global balanced fund with an MER of 1.49%. This type of fund focuses on long-term growth and is perfect for investors with moderate risk tolerance: about 60% of the holdings are a diversified mix of Canadian, U.S. and international equities, with the remaining 40% in bonds and cash.
A comparable global balanced fund by Steadyhand has an MER of 1.34% but requires investors to have a minimum account size of $10,000.
Consider RBC’s $500 account minimum for individual D-series funds a huge coup for the little Canadian investor who until now has never had such easy access to inexpensive actively managed mutual funds.