Even after the fee reduction, the cost for e-Series funds may seem steep to ETF investors, and are obviously higher than even TD’s own ETF fees. But index mutual funds do have their place.
Couch Potato investors with small accounts have long been directed towards e-Series funds over ETFs as an effective solution for accounts under $50,000, unless your discount brokerage offers commission-free ETFs.
TD e-Series funds are not subject to commissions on purchase and sale, other than a potential early redemption fee of 2% if selling within 30 days. This may make index mutual funds a better solution than ETFs if you are doing frequent, small, pre-authorized contributions, or if you are retired and decumulating your Couch Potato portfolio. Discount brokerage commissions on ETF purchases generally range from as little as nothing, up to $10 per trade.
Some accounts may be better suited to mutual funds over ETFs, just like some investors may be better suited to working with an investment advisor than being a do-it-yourself (DIY) investor. Everyone is different.
ETFs are also subject to differences between the bid and ask price, which may cause your purchase to be slightly more expensive or your sale to be slightly less lucrative than a mutual fund, which always trades at net asset value (NAV).
The tax implications of the pending TD e-Series switch should be minimal. The underlying e-Series fund investments will be transferred on a tax-deferred basis to the ETFs they are acquiring. TD estimates approximately 3% to 8% turnover of the funds’ existing holdings as the S&P and Solactive indices hold slightly different allocations of investments. This may trigger some capital gains, albeit minimal, and only for those who own TD e-Series funds in taxable non-registered or corporate investment accounts (RRSPs* and TFSAs* being tax-deferred and tax-free, respectively).
Compare the Best Robo-Advisors in Canada* >
Another big change that TD is rolling out is the ability for investors outside TD to buy e-Series funds. Many other discount brokerages will now offer the funds. If you have a TD account and want to transfer your e-Series investments to another brokerage that offers them, you can complete paperwork with the receiving brokerage to do so and transfer your investments in-kind (as is) to defer any potential tax payable on sale.