- Index funds aim to match an index such as the S&P/TSX Composite or the S&P 500 rather than beat it, which keeps costs low.
- The Ontario Securities Commission puts the typical equity ETF MER at about 0.54%, against about 2% for the average Canadian equity mutual fund.
- In the OSC’s example, $1,000 a year for 15 years at 5% costs $3,501 in fees at a 2% MER and $1,011 at 0.54%.
- Several Canadian brokerages list $0 commissions on ETF trades, and a TFSA or RRSP shelters the growth from tax.
Checked October 2026
What an index fund is
An index is a list of investments chosen to represent part of the market. The S&P/TSX Composite Index tracks the largest companies on the Toronto Stock Exchange, the S&P 500 tracks 500 large US companies, and the FTSE TMX Canada Universe Bond Index tracks Canadian investment-grade bonds.
An index fund simply holds what’s in the index, either every security or a representative sample, so its value rises and falls with it. You get hundreds of companies in a single purchase, and because nobody is paid to pick stocks, costs tend to be low. The Ontario Securities Commission (OSC) notes that once costs are counted, passive strategies can often outperform active ones.
The trade-off: an index fund can’t dodge a falling market. When the index drops, so does your fund.
Index ETFs vs index mutual funds
Index funds come in two wrappers. Both can track the same index, but you buy and hold them differently:
| Index ETF | Index mutual fund | |
|---|---|---|
| Where you buy | On a stock exchange, through a brokerage or robo-advisor | From the fund company, a bank or an advisor |
| Price | Changes all day while the market is open | Set once a day |
| Minimum | No minimum amount, just the price of one unit | Set by the fund |
| Costs | MER, plus any trading commission and the bid-ask spread | MER; usually no commission |
| Automatic investing | Many discount brokerages don’t automate ETF purchases; some robo-advisors do | Easy to set up regular purchases |
| Distributions | Paid in cash unless your firm offers automatic reinvestment | Often reinvested automatically |
Source: Ontario Securities Commission, GetSmarterAboutMoney.ca.
Most people investing on their own use ETFs because of the low MERs and $0 commissions at many brokerages. Index mutual funds suit people who want small automatic contributions without placing trades.
Why the MER matters so much
The management expense ratio (MER) is the fund’s yearly cost, taken as a percentage of your money. You never see a bill, because it comes out of the fund’s returns, and you pay it whether the fund goes up or down.
The OSC illustrates the difference with $1,000 invested every year for 15 years at a 5% return:
| MER | Fees paid over 15 years | What you end up with |
|---|---|---|
| 2% (average Canadian equity mutual fund) | $3,501 | $19,157 |
| 0.54% (typical equity ETF) | $1,011 | $21,646 |
Source: Ontario Securities Commission, 4 Differences between ETFs and mutual funds.
That’s $2,489 more in your pocket from the fee alone, and the gap widens the longer you invest. Try your own numbers in our investment fee calculator.
Pick the account before the fund
Where you hold an index fund affects your tax bill as much as which fund you pick. The OSC sums it up:
- TFSA: no tax while the money is in the plan or when you take it out.
- RRSP: no tax until you withdraw, and contributions are deductible.
- Non-registered account: you pay tax on distributions and on capital gains when you sell.
If you’re saving for a first home, the FHSA can hold index funds too. Compare the three in our TFSA vs RRSP vs FHSA guide.
How to buy your first index fund
- Choose do-it-yourself or a robo-advisorA self-directed brokerage lets you pick and trade ETFs yourself. A robo-advisor builds and rebalances an ETF portfolio for a management fee: Questwealth charges 0.25% on balances under $100,000 and 0.20% above, Wealthsimple’s managed Core tier 0.5%, and RBC InvestEase 0.50% plus tax.
- Open the accountPick TFSA, RRSP, FHSA or non-registered, then fund it by transfer from your bank.
- Choose your indexA broad Canadian, US or global equity index, a bond index, or an all-in-one fund that holds several. Read the ETF Facts and compare MERs between funds that track the same index.
- Place the orderSearch the ticker, enter how many units to buy and review the price. The bid-ask spread is a cost too, so trade while the market is open and active.
- Keep adding, and stay putSet a reminder or automatic contribution, reinvest distributions and check your mix once or twice a year rather than reacting to every market swing.
Compare commissions, account fees and robo-advisor fees across platforms on our investing page.
ETF commissions at Canadian brokerages
| Brokerage | ETF commission |
|---|---|
 BMO InvestorLine | $0 |
 National Bank Direct Brokerage | $0 |
 Qtrade | $0 |
 Questrade | $0 online |
 Wealthsimple | $0 |
 CIBC Investor’s Edge | $0 on ETFs on its eligible list |
 RBC Direct Investing | $0 on a selection of ETFs |
 Scotia iTRADE | $0 on eligible ETFs |
 TD Direct Investing | $0 on select ETFs |
From each brokerage’s own pricing page, checked October 2026. Listed A to Z within each fee level, not ranked.
Risks to keep in mind
- Market risk: an index fund falls with its market, and there’s no guarantee you’ll make money.
- Price vs value: an ETF’s trading price can sit above or below the value of what it holds, especially in quieter funds.
- Concentration: a narrow index, such as one sector or country, can swing harder than a broad one.
- Leveraged and inverse funds: they track two times an index or its opposite, use derivatives, and their own prospectuses generally say they may not suit long-term investing.
Frequently Asked Questions
What is an index fund?
It’s a mutual fund or ETF that holds the investments in a market index, such as the S&P/TSX Composite or S&P 500, so its returns follow that index. Because no one is picking stocks, fees are usually low.
How do I invest in index funds in Canada?
Open a TFSA, RRSP, FHSA or non-registered account at an online brokerage or robo-advisor, fund it, then buy an index ETF by its ticker or let the robo-advisor build an index portfolio for you.
What’s the difference between an index fund and an ETF?
An index fund describes the strategy: tracking an index. An ETF is a wrapper that trades on a stock exchange. Many ETFs are index funds, and index funds can also be mutual funds.
Are index funds better than mutual funds?
They usually cost less. The OSC says the average Canadian equity mutual fund MER is about 2%, compared with about 0.54% for a typical equity ETF, and that difference compounds over time.
How do I find a low-cost index fund?
Compare the MER in each fund’s ETF Facts or Fund Facts document, then add any trading commission. Several Canadian brokerages charge $0 to buy ETFs online.
Can I buy an S&P 500 index fund in Canada?
Yes. Canadian and US-listed ETFs that track the S&P 500 trade through Canadian brokerages. The OSC notes that ETFs listed outside Canada are taxed differently from Canadian-listed ones.
How do commission-free ETFs work in Canada?
Some brokerages charge $0 to buy or sell any ETF online, while others waive commissions only on a list of eligible ETFs. You still pay the fund’s MER and the bid-ask spread.
What is a leveraged ETF?
A fund that aims to return a multiple, such as two times, of an index’s daily move, using derivatives. Their prospectuses generally say they may not be appropriate for long-term investing.
How much money do I need to start investing in index funds?
The OSC says there’s no minimum amount to buy an ETF beyond the price of one unit. Robo-advisors and mutual funds may set their own minimums.
Should I hold index funds in a TFSA or RRSP?
Both shelter your growth from tax. A TFSA charges no tax on withdrawals, while an RRSP gives you a deduction now and taxes withdrawals later. Our TFSA vs RRSP vs FHSA guide compares them.
Try this next
Sources, checked October 2026
- Ontario Securities Commission: How market indexes can help you build your strategy getsmarteraboutmoney.ca
- Ontario Securities Commission: How Exchange-Traded Funds (ETFs) work getsmarteraboutmoney.ca
- Ontario Securities Commission: 4 Differences between ETFs and mutual funds getsmarteraboutmoney.ca
General information for Canadians, not financial, tax or legal advice. Rules and menus change, so confirm details with your bank, lender or the Government of Canada. See our methodology.