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Your Guide to Investing in Index Funds in Canada!

Investment is a broad space where people can put in their money in several investment instruments. The goal is to make money grow. One of such instruments is the index funds. The majority of investors prefer index funds in Canada extensively as they get to create passive income by investing in this market. However, just because investing in index funds is easy, it doesn’t infer that this is the ideal choice for all investors. 

Read: How to Invest in Index Funds in Canada?

Understanding Index Funds

The stock market has many terms that appear again and again in different scenarios for people who are investing. In the case of assessing the investing efforts, an index fund is a very prominent word.

To invest in index funds in Canada means you are investing in an exchange-traded fund or mutual fund that is traded in a specific market. Index funds consist of small shares of different companies or we can also infer them as a “basket of shares”. When an investor invests in index funds in Canada, they are buying a small part of the whole market. 

These index funds can be referred to as a “mini-me” for the market. Like Dow Jones Industrial Average or S&P 500. Index funds make sure that the investor’s portfolio is diversified because even though you invest the money in one index fund since it is a collection of many shares, you are actually buying different shares and not putting all eggs into one basket. 

Investors who are enticed by the passive investment will find index funds as an appealing alternative in the stock market. The focus of index funds is to mirror the market and not stay ahead of it. Hence, an investor does not need to worry about the marketing beating and they can invest in shares that have the potential to outperform the annual growth of the market. 

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Steps to Invest in Index Funds in Canada

index funds in Canada

Index funds are easy to invest in, to start, you need to follow the process which is similar to investing in mutual funds. The following steps will make it clear how you can invest in index funds in Canada without hitting a hurdle in the way.

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1. Find the Ideal Index Fund

Before investing in an index fund, you need to take the crucial decision on which of the index funds you want to invest in and which market index you want to trace. Do you want a broad approach by investing in S&P 500? Or you aim to keep up with the market index of a particular country like S&P/TSX in Canada, Footsie in the UK, or Dow Jones in the United States. You can keep a track of the companies that have high capitalization value or low market value too. 

If you are still unsure on which index fund you should settle on, or you are overwhelmed by all the choices, you should go for a Robo-advisor. These are technology-driven advisors that are simple and use algorithms to create a balanced portfolio. They take the information that you provide them as the foundation, and they also provide the facility to automate the investment deposits to instill money growth. 

Besides making investment easy, Robo-advisors also ensure that you are aware and participating in different markets and re-balance your portfolio. Hence, they get a financial advisor but at way fewer costs. 

Read: Top 15 RRSP & TFSA Mistakes To Avoid In Canada!

2. Select the Suitable Trading Platform/Brokerage 

You can invest in index funds in Canada from fund issuers like Fidelity or Vanguard. However, this right also comes with an obstruction – at some points, you will not be allowed to buy funds that are not associated with them. 

Hence, if you are looking for more alternatives, online brokers are the best and also the ones that cost less. Keep an eye on the brokers who charge 0% commission so you are not obliged to pay a sky-rocketing fee for investing in the index fund. 

With extensive use of the internet, it is evident that you can invest comfortably while going about your daily lives while also signing up for the broker online. 

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Before signing up for investing online, you have to find out what you will be paying and that it does not exceed your return, otherwise you will be getting no profits out of your investment. Even though you can invest in index funds in Canada over the phone too, signing up for an online broker is the most cost-effective method. 

The online trading platform will charge the per-trade commission fee or security fee which can range from $0-$10 for each trade. However, you can find 0% commission online brokers, too. On the other hand, you end up remembering that the fees can be high or low depending on the type of investment, trading habits. Etc. 


The features for each trading platform vary based on different factors. Some are advanced while some are simply for trading. Some of the features include letting you check the index fund price and the current news about the index funds that you are interested in. 

One question that you should keep in the loop while decking upon an online broker is, are you getting any other trade benefiting features?

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Investments are risky, and while it is not possible to segregate that volatility from the market. The least a stockbroker can do is provide security to your funds, like security from frauds, etc. Hence, you have to be aware of online phishing which is not realistic. 

If your broker is legitimate, they will have the membership of the IIROC (Investment Industry Organisation of Canada) and you can verify it on the website of IIROC. 

Read: What are GICs in Canada?


Before settling on a broker, checking the reviews is a crucial step. You can find these steps on Google Play or App Store, or you can even consult with someone in your network who is already using this platform.

3. Trading

After choosing your broker judiciously, and selecting your index, all the steps are quite intuitive. When you sign up for your broker online, you need to provide your bank details and link them to the broker platform for funds when you invest in index funds in Canada and start investing. 

You can choose the number of shares that you want to buy, and click on the option ‘buy’ or ‘trade’. And this is it! You have put in your first trade. 

Read: Your Guide To Best Dividend Stocks In Canada In 2022

4. Keep an Eye on the Progress

Index funds are meant for long-term returns and you should build your strategies according to them. If you aim to take out your invested money in a mong or even 5 years, investing in index funds in Canada might not be the prudent choice for you, a short-term financial instrument is more suitable here. 

Hence, for index funds, you should think far in the future, like your retirement. The historical records show that the prominent markets give good returns for investors who are not too quick to withdraw the money and are not always fiddling the portfolio. 

As the records show, the annual return rate for the S&P 500 has been 9.8% for the last 90 years. However, you should keep in mind that present results don’t depend on past results. 

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Some Index Funds in Canada

If you want to invest in index funds in Canada the most prominent names are S&P 500 and Dow Jones, but there are other big names that you can also invest in that corresponds to the index funds.

TDB900 (TD Canadian Index)

This fund traces the performance of established companies in Canada. This is a mutual fund that traces the Solactive Canada Broad Market Index, where the assets are traded on the Toronto Stock Exchange. It is also the biggest fund in Canada.

  • AUM: 1.275B 
  • Management Expense Ratio (MER): 0.32%.
  • Issuer: TD Asset Management Inc. 

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Scotia Canadian index fund (BNS181)

This fund trades on the indexes that comprise of S&P/TSX Composite Index. This mostly focuses on the financial sector, like the Royal Bank of Canada and Toronto-Dominion Bank. 

  • AUM: 244.10M 
  • Management Expense Ratio (MER): 0.77%.
  • Issuer: Asset Management

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CIBC Canadian Index (CIB300)

This mutual fund works for the S&P/TSX Composite Index as the benchmark, this includes the companies which trade on the Toronto Stock Exchange. This fund also focuses on the financial sector and other industrial sectors. 

  • AUM: 735.60M
  • Management Expense Ratio (MER): 1.14%
  • Issuer: Canadian Imperial Bank of Commerce 

RBC Canadian Index Fund (RBF556)

This fund focuses on investment in equity securities of the companies in Canada of the TSX/S&P Capped Composite Total Return Index. The top investments in this fund are the Canadian National Railway Co., Royal Bank Of Canada, and Toronto-Dominion Bank. 

  • AUM: 732.14M
  • Management Expense Ratio (MER): 066%
  • Issuer: RBC Global Asset

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Some Instances of Low-cost Index Funds

While it is already evident that the index funds are considerably lower in cost as compared to the stocks, you will still pay the annual management fee, and this fee varies based on the different features and services that you are acquiring. 

Hence, if you are looking to invest in the low-cost index fund keep an eye on the funds that have a lower MER (Management Expense Ratio) and you won’t have to pay the trading fees. Low-cost index funds do not require a lot of funding from your side and are great investments for newbie investors in the market. To give you a better idea, here are some examples of the same:

S&P 500-Tracking Index Funds

One of the funds that have a low fee and also tracks the S&P index includes Schwab S&P 500 index, whose annual expense ratio is 0.02%, or you can invest in index funds in Canada in the Fidelity 500 index, whose expense ratio is 0.02% as well. 

Read: Your Guide on How to Invest in an ETF in Canada

Bond Index Funds

Some bond index funds that have low costs are Vanguard Total Bond Index and Northern Bond Index, whose expense ratio is 0.15% in Canada. The Vanguard Canadian Aggregate Bond Index ETF contains an ER of 0.13%.

Pros and Cons of Index Funds

Index funds are a good choice for the new, time-lacking, cautious, and budget stringent investors who are first in the investing game. However, to invest in index funds in Canada is not suitable for everyone, as it is not immune to the disadvantages. Hence, you need to know about them before you start to invest money. 

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Advantages of index funds

Low Costs 

In comparison to traditional mutual funds, index funds have much lower fees. You don’t have to manage them actively, the fee is low, and even no-commission trading. So in order to balance your portfolio, the fee of an index fund will usually be around 0.05% to 0.25%, and actively managed funds can be charged from 1% to 2%.


As opposed to mutual funds that have different needs like research, fund manager, or financial advisor, the index funds are easy to invest in and take away the burden of keeping an eye on what stocks will give the best return. 

Since this is a passive investment, the index funds mirror the market and do not try to outshine it. Hence, investors who have limited time, energy, and money choose this investment instead of paying large sums of money to fund managers. 

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Diversification of Portfolio

New investors are usually too wound up to invest in different financial instruments for profits, and they are also now aware of how to diversify their portfolios. Hence, if they invest in index funds in Canada, it might be more beneficial for them. 

Since index funds are a combination of many stocks from different industries. You get in-built diversification. Moreover, diversification has many benefits that you can profit upon by simply investing in index funds. 

Disadvantages of Index Funds

Low Risk, Low Reward

Index funds are low-risk investments. Since you are not scouring the market and choosing different stocks. This is especially true if you are holding on to the investment in the index funds for a long time and witness the dips in the market. 

However, it also means that you will not be close to finding the next big conglomerate like Facebook anywhere in the future, that is because the companies of index funds are already well-established, consistent with steady records, and have good growth. Some investors will prefer the option of stocks. 

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Low Flexibility

The quality of index funds that make it an attractive investment option for passive investors is also the reason for frustration for the investors who need more control over their portfolio and the instrument that they invest in. 

For people who are crypto enthusiasts and want to invest in it, investing in index funds can be limiting for them. In the same way, if there are companies whose ideals you don’t agree with within the index fund, there is not much you can do about it.

Low Liquidity 

Index funds are ideal for long-term investment goals. Hence, if you aim to withdraw after a short time of 3 or 5 years,  the returns might not align with the inflation. It will not shield you from market downtrends. Hence, if you are looking to generate more interest in less time, a high-interest savings account is the best way to go.

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ETF Vs. Index Funds Vs. Mutual Funds

ETFs are not Index funds and index funds are not mutual funds, at least not in all cases. And here is the reason why these are different.

ETFs versus Index Funds

Index funds and ETFs mirror the market and are not needed to be actively managed, hence they have no fees that are linked to them. And just like index funds, ETFs are also aimed to be in holding for the long term. 

However, index funds as compared to mutual funds also have a high investing minimum threshold and can be revolting to the new investors who are not entering the market with loads of capital.

While on the other hand, ETFs are exchanged just like stocks. This means that the index funds can be traded around the day, on the other hand, index funds trade only once a day, once the market is closed, and the prices are set at that time. Hence, the flexibility for buying and selling shares is low.

In ETFs, you can find an ideal combination of stocks, bonds, and other such investing instruments easily. 

ETFs are also less costly because they are not actively managed, hence, the fees are also low since the fund managers are not involved. When you combine low commission with low investment, ETFs become the first-hand choice for investors who cannot invest a large sum all in one. 

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Index Funds versus Mutual Funds

An index fund is kind of a mutual fund, but the same features end on this point. The main differentiation point between the index fund and mutual fund is in mutual funds, the fund managers manage the fund’s inactive manner to beat the market by re-balance, buying and selling assets, and reinvesting those funds in different sectors and they have the potential for growth that is above-average.

Read: Guide to Investing in Mutual Funds in Canada

When you invest in index funds in Canada coasting is the main factor, intending to trace the returns for the market that they index. The fund manager aims to maximize the growth of the fund, while the index contains different assets in the index, and holds them in different ratios.

Hence since mutual funds need more research, re-balancing,  they have more annual fees as compared to index funds. 

Some Other Alternatives to Index Funds

Like we said before, index funds are not everyone’s cup of tea. If you have the goal for high returns in the short term and more control over your investment, then an actively managed mutual fund is more suitable. It may be possible that you are more inclined towards investing in stocks and you want more control on what to sell or what to buy then low-cost trading platforms should be something that you should keep your eye on. 

If you are interested in the opposite of what we just mentioned and want a long-term, stable investment portfolio, ETFs are your ideal choice. ETFs have some similarities with index funds, ETFs combine different sectors in one and do not have as many limitations as the index funds.  

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When you go for a Robo-advisor this becomes even more simple, as it will help to scatter the money across different industries with the help of an ETF, which includes stocks, real estate, bonds, and international markets. Hence, you have a diversified portfolio. 

Hence, by not putting all your funds in one avenue, you will reduce the degree of risk that you are taking on, and reduce the chances of losing all your money. That is because the chance that every company in an index fund will crash is highly unlikely. Index funds combine many assets in the market, including small, medium, or large companies like Cannabis, real estate, cryptocurrency, tech, bonds, and such other assets.

Mutual funds need managers who can actively manage them and usually come with a fee, but index funds just want to stay side by side with the market. 

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A Little More Before Signing Off

Prominent financial institutions like RBC, TD, and Scotiabank track the markets like Toronto Stock Market ( also called the S&P/TSX), the Vancouver Stock Exchange, Canadian Securities Exchange, and TSX Venture Exchange. The alternatives for Canadian investors are TD e-Series index funds, RBC index fund, or Canadian Index Fund (CIBC). 

Hence index funds help you scatter your money and make the best move to garner returns. After all, the statistics show that over 92% of large-cap active-fund managers are behind S&P 500 for the past 19 years. Therefore, people looking for long-term growth with low risk can easily invest in index funds. 

With the attractive features that index funds come with, it is evident that they are very beneficial if you are looking to buy the different shares of different companies which would usually cost a lot at a meager price. For example: If you want to invest in shares of Company A whose usual face value is $500 per share, which is not as per your budget. But you can invest in the same company at a much lower price if you invest in index funds. 

Not only this, you get to diversify the portfolio further with different shares since index funds are a combination of many shares, hence you are achieving all the goals without burning through all your capital. 

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The benefits you get with index funds include lower investment, lower taxes, more benefits, and it’s so simple that new investors would not need extensive training or knowledge to start. However, before selecting one index fund, the investors should consider their budget, the cost of the index funds, and the fact that not every index fund will give the same return as the other, and the basket of shares in it might all not be the one that you favor, and the cost also differs.

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Devanshee Dave

Devanshee is a staff writer at She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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