Get Approved for up to $35,000 in 3 minutes
Apply Now
Blog Categories
Loan Calculator

How to Invest in Index Funds in Canada

Written by Jessica Steer
If you are a new investor, it can be very overwhelming to figure out where to start. There are so many different options to choose from, but one of the popular options is index funds. What exactly are index funds? Well, because index funds are similar to mutual funds and ETFs, many investors tend to use them for retirement. The easiest way to explain then is they are a type of ETF or mutual fund that is made to track or match the components of one financial market index.
Table of Contents

    How Index Funds Work

    As we mentioned above, index funds are types of mutual funds and ETFs (Exchange Traded Funds). There are different types of index funds and each one mirrors a different type of index. Each index has different stocks in it so instead of investing in one stock at a time, you are investing in multiple stocks. Many people prefer this because then your money is diversified instead of being invested all in one place.

    This type of investing is less stressful and can be less risky than investing in just one stock at a time. This is because, when you invest in individual stocks, you are trying to beat the market. Index funds just mirror it which, while the return might not be as significant, the risk is less. This is sometimes referred to as passive investing.

    Low Cost Index Funds

    While low cost index funds may sound like the index fund costs less money, it actually refers to the fees related to the index fund. Many investors like to choose these because then they get a better return. The more money that is invested directly into the index, reduces their overall cost. They are also really easy to get. You can purchase them directly from your financial institution.

    One Fund Solutions

    These types of index funds require no effort on your part. They are already designed to be either conservative (low risk and considered to be income focused), medium risk (balanced) or high risk (growth). There are also no commission fees associated with one-fund solutions which is great. This puts less pressure on you as the purchaser. These types of indexes are considered to be passively managed index funds

    Individual Index Funds

    With individual index funds, they can be purchased and combined allowing you to create your own diversified portfolio. These stock index funds are often purchased by investors with a higher risk tolerance.

    Some investors will use a fund manager to create a fund for them with these individual indexes. These can cost a bit more because they are actively managed index funds, but they can give you a good return on your investment.

    How to Purchase in Index Fund in Canada

    Purchasing an index fund in Canada is actually very simple. You can go through your financial institution such as a bank or credit union and they can help to set you up with the index fund of your choice. If you don’t want to do it that way, you can also go through a brokerage.

    Before you go in to purchase an index fund, though, you should have an idea of what index fund you want to invest in. Are you looking at a “one-fund solution?" Or are you going to diversify your profile a bit and invest in multiple index funds? There is plenty of research you can do to see what fund is the best for you but there are some that are more popular than others, as well.

    Best Index Funds to Invest In

    As we mentioned, it can be really difficult to decide which index fund to start investing in. There are so many to choose from, it can become overwhelming. Here are a few of the best ones to get you started.

    BMO S&P/TSX Capped Composite Index ETF

    This is a great index fund to get started as a beginner for a few reasons. It has a low fee cost of 0.06% so essentially it costs $6.00 for every $10,000 you invest. It also closely follows the S&P/ TSX Capped Composite Index, like the name suggests. This means that it contains the largest Canadian companies that are trading on the TSX, also known as the Toronto Stock Exchange. While that may not sound like much it actually contains 95% of the Canadian total equity market. These factors not only make it a great investment for beginners, but it is also great for experienced investors. The size of this investment makes it quite stable and works well if you intend to buy the index and hold onto it for a while.

    iShares S&P/TSX 60 Index Fund

    Another index fund that is great for beginners, as well as long term investors, is the iShares S&P/TSX 60 Index Fund. As you may have already guessed, it follows the S&P/TSX 60 market index and, as the name suggests, it contains 60 of the biggest stocks (by market cap) on the TSX.

    Interesting fact, this index is the oldest Canadian ETF on the market. The fees on this index are a bit higher than the Capped Composite Index ETF, with a management expense ratio (MER) of 0.18%, costing only $18 for every $10,000 invested.

    Vanguard FTSE Canada All Cap Index ETF

    The Vanguard FTSE Canada All Cap Index ETF is also largely invested in index. That being said, its stocks are a lot more diversified than the other Indexes we have discussed. This index picks stocks from the FTSE Global Equity Index Series, which holds 98% of the world’s stock market. This allows the index to contain a variety of large, small and mid cap stocks, not just large ones,

    The MER on this index is only 0.05% ($5 per every $10,000 invested), and the diversification of it helps to diversify your portfolio. An index like this isn’t always a first choice for beginner investors because there are more variables involved, but it is often purchased in a mix with other indexes.

    Best Low Cost Index Funds

    With low cost index funds, you can choose between “one-fund solutions” or individual indexes. Here are a few of the most recommended of each.

    One-Fund Solutions

    One of the most common ones is the Tangerine Funds. It has a MER between 1.05% and 1.07% ($105-$107 per $10,000 invested), and you can choose the ratio you want.

    • Equity Growth Fund - 100% stocks
    • Dividend Fund - 100% dividend funds
    • Balanced Growth Fund - 50% fixed income and 50% stocks
    • Balanced Fund - 40% fixed income and 60% stocks
    • Balanced Income Fund - 70% fixed income and 30% stocks

    Another one is the TD Balanced Income Fund which offers 50% fixed income and 50% stocks. The MER on this index is 0.89% or $89 per $10,000 that is invested.

    Individual Index Funds

    When you are looking into individual index funds, each financial institution has their own that you can choose from. While there are plenty of banks we can choose from, let’s take a look at TD and RBC. You will notice a pattern of Index funds, bond index funds, Us Index funds and International index funds.


    The index funds you can choose from with TD are:

    • The TD Canadian Index. This has an MER of just .32 % or $32 per every $10,000 invested.
    • The TD Canadian Bond Index. This one has an MER of .51% or $52 per every $10,000 invested.
    • The TD U.S Index. This index has an MER of .34% or $35 per $10,000 invested.
    • The TD International Index. This one has an MER of .49% or $49 per $10,000 invested.


    The index fund options offered with RBC are as follows:

    • The RBC Canadian Bond Index. This has an MER of 07% or $70 per $10,000 invested.
    • The RBC Canadian Index Fund. This has an MER of .66% or $66 per $10,000 invested.
    • The RBC U.S Index Fund. This has an MER of .66% or $66 per $10,000 invested.
    • The RBC International Index Currency Neutral Fund. The MER is .61% or $61 per $10,000.

    What Brokerages Allow You to Purchase Index Funds?

    As we mentioned, major banks and credit unions allow you to purchase index funds. You can also purchase index funds through brokerages, even the online ones like wealthsimple. If you go through Wealthsimple, or a similar brokerage, they will help you to create a diverse portfolio that can help you achieve your goals.

    S&P 500 Index Fund and Purchasing in Canada

    Even if you don’t know a lot about the stock market or index funds, there is a good chance you have heard of the S&P 500. While the S&P 500 is a popular index, you actually can’t invest in it in Canada. However, you are able to invest in the stocks that make up the S&P 500 index. You can also invest in Canadian indexes that follow the S&P 500's performance.

    We already mentioned that index funds are a type of Mutual fund and ETF so you will find both kinds of these indexes. There are both types of these indexes in Canada that follow the S&P 500. The mutual funds are better for long term investments, whereas ETFs if you don’t plan on holding onto it for a long period of time. The ETFs also have lower MER fees. This is not only true for indexes that follow the S&P 500, but all indexes.

    Index Funds and Taxes

    When you are investing in any kind of stock it is important to remember that you have to pay taxes on the earnings that you receive from these investments. In some cases it may be considered income, in others you may be charged a capital gains tax. Whether the index is an ETF or mutual fund doesn’t have a lot of bearing on how you claim them on your taxes.

    That being said, it can be confusing to involve your investments in your taxes. The CRA determines what kind of tax you pay on your earnings based on if it is considered business income or not. If investments are a full time income for you and you are considered to be self employed, then what is affected is when you pay income tax. The date for self-employed taxes is June 15 instead of April 30.

    Are Index Funds the Right Choice for You?

    The thing with index funds is that you can invest in them long term or short term. Some people choose to use them for retirement where others include them in their investment portfolio and trade them like stocks. These differences will determine whether you are looking at a mutual fund index or an ETF index. The thing is though, you can make a return on either. You are also able to invest in index funds by yourself. That being said, because not all index funds are the same, you are able to speak to a broker or your financial institution for some recommendations. Whatever you choose to do, index funds are just one of the many ways you can grow your money while investing in the stock market.

    Online Loans from 9.99%*

    Skip the branch visits, apply online in minutes and get the financing you want today.

    Get a Loan Quote

    Subscribe to receive special offers and financial tips

    Subscribe To Our

    Receive Special Offers, and Learn Tips and Tricks to Improve your Finances.