Updated: April 2025  |  bremo.io financial guides

ETF vs Mutual Fund Canada 2025 — Which Is Better?

Canadians collectively hold hundreds of billions of dollars in mutual funds — often paying management fees of 1.5%–2.5% annually. Yet low-cost ETFs offer nearly identical or better diversification for a fraction of the cost. Understanding the difference is one of the most valuable pieces of financial knowledge a Canadian investor can have.

What They Are

Mutual funds pool money from many investors to buy a portfolio of securities. A fund manager makes buy/sell decisions (active management) or the fund tracks an index (passive). Sold through banks, advisors, and fund companies.

ETFs also pool investor money into a portfolio, but trade on a stock exchange like a share throughout the day. The vast majority of popular Canadian ETFs are passive index trackers.

The Fee Gap Is Enormous

On a $200,000 portfolio over 20 years at 7% gross return, the difference between a 2% MER mutual fund and a 0.20% ETF is approximately $285,000 in additional wealth — from the same underlying market returns.

Performance Comparison

The SPIVA Canada report consistently shows that the majority of actively managed Canadian mutual funds underperform their benchmark index over 5, 10, and 15-year periods after fees. This isn't a surprise — it's mathematically difficult to overcome a 1.5%+ annual fee disadvantage through stock selection.

Why Canadians Still Own So Many Mutual Funds

• Bank advisors are often compensated by mutual fund trailer fees (embedded commissions)
• Mutual funds can be bought in dollar amounts; ETFs require whole shares
• Many investors don't know ETFs exist or how to buy them
• Perceived convenience of having an advisor handle everything

When Mutual Funds Make Sense

• Workplace savings plans (DPSP, group RRSP) that only offer mutual funds
• Investors who genuinely won't manage any account independently
• Certain niche funds with no ETF equivalent

Making the Switch

If you have mutual funds at a bank and want to switch to ETFs, you typically need to sell the mutual funds (check for redemption fees or deferred sales charges) and transfer the proceeds to a discount brokerage to buy ETFs. Switching inside a TFSA or RRSP triggers no immediate tax. Switching inside a non-registered account may trigger capital gains.