Are RRB mutual funds a good substitute for RRBs?
There are now several mutual funds that invest primarily in RRBs. Because their MERs are above 1.5%, you can expect that a third or more of your returns will be eaten up by fund expenses. By contrast, if you buy an RRB from a broker and hold it to maturity, the commission you pay, amortized over 20 to 30 years, will be just a few basis points per year. RRB mutual funds may make sense if you have very small amounts to invest. Alternatively, consider “parking” your money in a money market or short-term bond fund until you have enough to buy an RRB. In late 2005, Barclays Canada introduced a Real Return Bond Index ETF (symbol XRB) that provides the same benefits as conventional RRB mutual funds but charges an MER of only 0.35%.
