Royal Bank of Canada’s mutual funds: what you need to know

As a leading financial institution, Royal Bank of Canada also offers mutual funds. Are these mutual funds from RBC a viable investment? Read on to know more

Royal Bank of Canada’s mutual funds: what you need to know

Royal Bank of Canada can trace its origins back to 1864, when it was first known as the Merchants Bank of Halifax. Its original incorporators comprised a small group of maritime traders and operated as a private bank that helped facilitate their business activities.

After many acquisitions and transformations, Royal Bank of Canada has evolved from its humble beginnings as an unchartered commercial bank, to the financial giant it is today.

Given its prestigious history and established reputation as a sound financial institution, can mutual funds from Royal Bank of Canada be deemed a good investment? Are mutual funds from RBC any good? We’ll get into these questions and more in this article.

What is a mutual fund?

A mutual fund is a fund created from money pooled from several people or groups of people, which is then invested in a diversified asset portfolio. The mutual fund is then managed by what is known as a professional fund manager.

Mutual funds are called such because several people or entities mutually invest in the fund. The portfolio can include a variety of assets like stocks, bonds, money market funds, or even real estate assets.

Different types of mutual funds

The market for mutual funds in Canada has seen an increase since the Great Depression when they were first introduced. As of end-2022, the number of mutual funds in Canada is 3,049 – a significant number for sure, but still less than the number of mutual funds in the US.

These are the most commonly managed types of mutual funds:

1. Fixed Income Mutual Funds

Most fixed income mutual funds are invested in high-quality bonds issued by domestic or foreign governments, provinces and corporations, making this relatively low-risk, regular income-generating fund.

Fixed income mutual funds may be further classified into:

  • fixed income mutual funds invested in long-term bonds – give investors regular income
  • fixed income mutual funds trading in bond portfolios – give a high total return comprised of interest and capital gains

While this is among some of the most secure investments, fixed income mutual funds are still subject to price fluctuations from changes in interest rates. With this fund, investors can receive interest income every month or every quarter, with any capital gains paid out yearly.

2. Growth/Equity Mutual Funds

Usually known simply as growth funds, this type of mutual fund can give investors a cushion from the impact of inflation. This fund is mainly focused on growing capital, though the investment style can vary across different funds of this nature.

Most equity mutual funds invest in common stocks, and often employ a conservative, long-term growth strategy. This is achieved by investing in stocks that have attained the "blue chip" status.

It’s also possible for a growth fund to use a more aggressive strategy, focusing on smaller companies with a smaller capitalization, or with startup companies that exhibit the potential to grow rapidly.

It's not unheard of for some equity mutual funds to use both strategies.

For investors who want greater diversification, they can choose from mutual funds that extend beyond Canada’s borders. Note that there are also equity mutual funds that specialize in a particular industry sector, geographic region or even a country. It’s possible for investors who are upbeat about a particular country to purchase a mutual fund focused on that country.

3. Dividend Mutual Funds

These are usually invested in preferred and common shares that are high-yielding and pay dividends. Dividend mutual funds appeal most to investors seeking a steady income stream, while taking advantage of the corresponding dividend tax credit, for a better return on their investment after taxes.  The only possible drawback to this fund is that it has minimal capital gains potential.

4. Index Funds

Index funds are mutual funds based on a specific stock index, like the NASDAQ, S&P or TSX. These are also known as "passively managed" funds, as there is no active selection of the securities held within the fund. A possible drawback to this type of mutual fund is that the management expense ratios (MERs) are lower than other funds, due to the low trading volume and lack of analysis and selection for the securities.

5. Balanced Mutual Funds

This is a combination of equities, bonds and short-term money-market instruments. A balanced mutual fund is best suited for investors who want long-term capital growth along with the security of interest income.

One benefit of the balanced mutual fund is that fund managers can adjust the weights of assets as opportunities arise or conditions change to maximize the fund’s performance.

6. Closed-End Mutual Funds

Closed-end mutual funds are those invested in a portfolio of securities but only have a fixed number of shares that can be purchased. Shares in closed-end funds are bought and sold on the different stock exchanges.

7. Labour-Sponsored Investment Funds

LSIFs or Labour-Sponsored Investment Funds usually invest in small private firms not listed on public stock exchanges. Also called Labour-Sponsored Venture Capital Corporations (LSVCCs), the advantage of this fund is that it can be eligible for tax credits.

Investments in LSIFs are not suitable for all investors – these are considered relatively high-risk, and not many investors would find they meet their tastes or requirements. Most LSIFs require a minimum holding period of at least 8 years to avoid paying the tax credits.

8. Money Market Mutual Fund

This fund mainly invests in short-term, interest-bearing instruments like Treasury Bills. For the risk-averse investor, this can give a stable, safe source of interest income. Money market funds are often considered as an ideal alternative to bank accounts or term deposits.

Apart from being very safe, money market mutual funds are quite versatile, as they may focus on domestic markets or diversify by including foreign money markets. Foreign money market mutual funds also provide investors with potentially higher earnings from currency appreciation. The performance of the fund is usually measured based on the average annual yield, instead of on compound rates of return.

Another advantage of this fund is that income is credited daily and paid monthly at competitive rates, as compared to other short-term investments.

Other fund types

Fund of funds

A fund of funds can be invested by asset type, geography and industry sector, and are meant for investment in a cluster of other mutual funds, providing greater diversity in investment.

Managed payout funds

These funds offer a regular cash flow derived from capital gains, dividends, and interest, and can sometimes come with a return on the invested capital.

Target date funds

These are balanced funds that offer the flexibility of adjusting their target asset allocation weights over time as the maturity date approaches.

Specialty funds

For the more adventurous investor, these funds employ unconventional investment strategies. Specialty funds deal with venture capital or other areas that may be at odds with traditional mutual fund categories.

Does RBC have mutual funds?

Yes, Royal Bank of Canada does in fact offer mutual funds, mainly money market funds, fixed income funds, equity funds, balanced funds, and other mutual funds.

Prospective investors may find that a wide range of RBC mutual funds is available under different names. For example, some of the growth or equity funds they offer include the Canadian Equity Fund or the RBC International Equity Fund. The Royal Bank of Canada has a whole section on some of RBC’s popular mutual funds, where they are described in more detail.

Here’s a video that points out the benefits of RBC mutual funds:

What’s the difference between RBC GIC and RBC Mutual Funds?

A GIC or Guaranteed Investment Certificate is an investment that generates income based on a fixed or variable interest rate over a set period of time.

A mutual fund allows a group of investors to pool their money into different asset classes, which can include stocks, bonds, and sometimes even real estate.

Mutual funds also differ from GICs in that they do not guarantee any minimum return, nor do they have a time limit on capital invested.  

Which is better, a GIC or a mutual fund?

The answer to that question depends heavily on the risk appetite, needs, and goals of the investor. If they aren’t comfortable with the possibility of losing their entire initial investment, then perhaps a GIC with less risk but moderate earnings is preferable to a mutual fund. While posing more risk, investing in mutual funds is more of a long-term strategy that could earn much more than even the most viable GIC with a high interest rate.

What’s good about RBC mutual funds?

RBC mutual funds are counted among some of the best-performing mutual funds available in Canada. They also hold the distinction of being owned and managed by one of the world’s ten largest banks.

Royal Bank of Canada’s latest acquisition in 2022 was HSBC Bank Canada for $13.5 billion (Canadian), giving RBC 100% of HSBC Bank Canada’s common shares.

According to BNN Bloomberg, this single transaction is deemed as the largest domestic bank acquisition in Canada to date.

When it comes down to a specific RBC mutual fund, Select Balanced Portfolio is now considered as Canada’s largest mutual fund. It has over $38 billion in assets managed by RBC, comprising one of the biggest assets under management (AUM).

What’s a good mutual fund for receiving regular income payments?

One good option of RBC mutual fund is the Canadian Equity Income Fund. What makes this a good choice for receiving regular income? It has an excellent track record as a long-term investment. This mutual fund has the largest amount of assets under management by one of the largest banks in Canada, if not the world. The fund also focuses on Canadian stocks, giving it a moderate risk level.

Choosing the right mutual fund

So, is the RBC mutual fund worth investing money in? While it may seem like a solid investment at first glance, a mutual fund cannot elicit an immediate and definitive “yes” or “no” answer. The process of choosing the right mutual fund is a long and complicated one. This has to begin with the investor determining what their needs and financial goals are and what steps they are willing to take.

After assessing needs and goals, the logical and sensible approach would be to consult an expert fund manager for investment advice. They can help you find the best mutual fund, or other investment if appropriate, given those parameters.

Note that mutual funds don’t only have their share of risks, but also come with their share of management fees and expenses. Investments like these can also be influenced by other external factors like an impending recession, which can have an impact on any expected returns.    

Would a mutual fund from RBC be an investment you’d consider? Let us know in the comments!