ETFs and mutual funds both hold baskets of stocks or bonds, but the similarities mostly end there. In Canada, the gap between the two — particularly in fees — is among the widest in the world. Here is a complete comparison to help you decide which is right for your portfolio. For the broader passive-investing context, start with our ETFs and index funds hub.
Quick Comparison
| Feature | ETFs | Mutual Funds |
|---|---|---|
| Average MER | 0.03–0.50% | 1.5–2.5% |
| Trading | Buy/sell anytime on exchange | Once per day (end of day) |
| Minimum investment | Price of one share (~$25–100) | Often $500–$5,000 |
| Management style | Mostly passive (index) | Mostly active |
| Purchase method | Brokerage account | Bank, advisor, or brokerage |
| Fractional shares | Yes (at some brokerages) | Yes (dollar amounts) |
| Automatic contributions | Limited (some platforms) | Easy (pre-authorized) |
| Advisor compensation | None embedded | Trailing commissions included |
Fee Comparison
Use the MER calculator if you want to model these fee differences on your own portfolio instead of relying on averages.
This is the most important difference. Canadian mutual fund fees are among the highest in the world.
| Category | ETF Example | ETF MER | Mutual Fund Example | MF MER |
|---|---|---|---|---|
| Canadian equity | XIU (iShares S&P/TSX 60) | 0.18% | RBC Canadian Equity Fund | 2.04% |
| US equity | XUU (iShares Total US) | 0.07% | TD US Equity Fund | 2.26% |
| Global equity | XEQT (iShares All-Equity) | 0.20% | BMO Global Equity Fund | 2.15% |
| Canadian bonds | ZAG (BMO Agg Bond) | 0.09% | CIBC Canadian Bond Fund | 1.46% |
| Balanced | XBAL (iShares Balanced) | 0.20% | RBC Balanced Fund | 2.12% |
What Fees Cost You Over Time
Assuming $100,000 invested, 7% average annual return before fees:
| MER | Value After 10 Years | Value After 20 Years | Value After 30 Years |
|---|---|---|---|
| 0.20% (ETF) | $196,000 | $384,000 | $752,000 |
| 1.00% (low MF) | $179,000 | $321,000 | $574,000 |
| 2.00% (avg MF) | $163,000 | $265,000 | $432,000 |
| 2.50% (high MF) | $155,000 | $241,000 | $373,000 |
The difference between a 0.20% ETF and 2.00% mutual fund over 30 years: $320,000 on a single $100,000 investment.
Performance Comparison
S&P Dow Jones publishes annual SPIVA Canada scorecards comparing active fund performance vs benchmarks:
| Category | % of Active Funds That Underperformed (10-Year) |
|---|---|
| Canadian Equity | ~88% |
| US Equity | ~92% |
| International Equity | ~90% |
| Canadian Bond | ~85% |
The data is consistent year after year: the vast majority of actively managed mutual funds fail to beat a simple, low-cost index ETF over meaningful time periods.
Tax Efficiency
| Factor | ETFs | Mutual Funds |
|---|---|---|
| Capital gain distributions | Rare | Common |
| In-kind creation/redemption | Yes (avoids taxable events) | No |
| Year-end distributions | Minimal | Can be substantial |
| Tax control | You decide when to sell | Fund manager triggers gains |
ETFs distribute fewer capital gains because of their in-kind creation/redemption mechanism. Mutual funds regularly distribute capital gains to unitholders — even in years where the fund lost value — creating an unexpected tax bill.
This matters primarily in non-registered accounts. In TFSAs and RRSPs, tax efficiency is irrelevant.
When Mutual Funds Still Make Sense
| Scenario | Why |
|---|---|
| Employer group RRSP/DPSP | Often mutual funds only |
| Automated contributions | Some platforms only support MFs |
| Want an advisor | Trailing commissions pay the advisor |
| Very specific strategies | Some niche strategies only in MF format |
| Starting with very small amounts | $25/month auto-invest into MF is easy |
If your employer offers a group RRSP with mutual funds, always contribute enough to get the full employer match — even if the MERs are high. Free money from the match outweighs the fees.
When ETFs Are the Clear Winner
| Scenario | Why |
|---|---|
| Self-directed investing | Lower cost, more control |
| Long-term buy-and-hold | Fee savings compound enormously |
| Non-registered accounts | Tax efficiency advantage |
| Large portfolios ($25K+) | Fee savings become significant |
| You have a brokerage account | $0 commissions at Wealthsimple/NBDB |
If you are new to the category, our Canadian ETF guide is the best next stop.
How to Switch from Mutual Funds to ETFs
- Open a discount brokerage account — Wealthsimple, Questrade, or NBDB
- Transfer your accounts — Initiate a transfer from the new brokerage; most cover transfer fees up to $150
- Sell mutual fund holdings — Once transferred, sell the mutual fund units
- Buy equivalent ETFs — Replace each mutual fund with a low-cost ETF
Common Replacements
| Mutual Fund Type | ETF Replacement | Ticker | MER |
|---|---|---|---|
| Canadian equity fund | iShares S&P/TSX 60 | XIU | 0.18% |
| US equity fund | iShares Core S&P Total US | XUU | 0.07% |
| International equity fund | iShares Core MSCI EAFE | XEF | 0.22% |
| Balanced fund (60/40) | iShares Core Balanced | XBAL | 0.20% |
| Growth fund (80/20) | iShares Core Growth | XGRO | 0.20% |
| All equity | iShares Core Equity | XEQT | 0.20% |
| Canadian bond fund | BMO Aggregate Bond | ZAG | 0.09% |
If you want a one-ticket replacement instead of rebuilding line by line, look at best all-in-one ETFs in Canada.
Or simplify your entire portfolio into a single all-in-one ETF like XEQT or VGRO.
D-Series and Low-Fee Mutual Funds
Some banks offer D-Series (discount) or Series F mutual funds with reduced fees:
| Series | Typical MER | Availability |
|---|---|---|
| Series A (standard) | 2.0–2.5% | Through advisors/banks |
| Series D (discount) | 1.0–1.5% | Self-directed at bank brokerages |
| Series F (fee-based) | 0.7–1.2% | Through fee-only advisors |
Series F and D funds are cheaper but still more expensive than ETFs. They can be a reasonable middle ground if you want mutual fund features with lower fees.
Robo-Advisors: The Middle Ground
If you want the low fees of ETFs but the automation of mutual funds, robo-advisors build and manage an ETF portfolio for you:
| Robo-Advisor | Management Fee | Underlying ETF MERs | All-In Cost |
|---|---|---|---|
| Wealthsimple Invest | 0.40–0.50% | ~0.20% | 0.60–0.70% |
| Questwealth | 0.20–0.25% | ~0.20% | 0.40–0.45% |
| Justwealth | 0.40–0.50% | ~0.20% | 0.60–0.70% |
| CI Direct Investing | 0.35–0.60% | ~0.20% | 0.55–0.80% |
All-in costs of 0.40–0.70% are dramatically lower than traditional mutual funds while giving you automatic rebalancing and contributions.