Question

What advantages and disadvantages of choosing the TD Canadian blue chip equity fund compared to the TD Canadian index fund?

Answer 1

the advantage and disadvantages of investing in blue chip equity fund.

blue chip equity funds means investing in stocks of companies that are well establishes and have a huge market capitalization. equity funds have provided very high returns in the past. a large cap stock or a blue chip company is one with a market cap greater than 1o billion.

advantage are :

1) these large companies have long history of profitability.

2) as the profits are distributed as dividends to shareholders, so there is regular dividend received made by investing in blue chip equity fund, as the growth potentials are very less for these companies a sthey are already well established and developed.

3) large cap companies provide stability as they are well established/developed companies.

4) large cap companies have a very long tenure hence the data available for research is for a long time, hence a lot of research on it's valuations can be done.

disadvantages:

1) there is very less focus on growth on these companies. although they provide a steady dividend income, but most investors are interested in investing in businesses where they reinvest their profits for further growth in the company.

2)as a young investor,we would be more interested to look out for aggressive , high growing companies rather than investing in older companies which have already exhausted all their growth opportunities.

the index mutual funds consist of the stocks which are heavily traded stocks on the TSX,

advantages,

1) Index funds help getting exposure to certain stocks which are otherwise to expensive to buy on the stock exchanges.

2) it helps to avoid certain management styles that provide with below average performance in the long run.

disadvantages:

3) since, these funds are passively manged they have a lower expense ratio.

!) the tracking error : although the fund manager tries his best to track the index the tracking error has to be kept at the minimum.

2)these are passively managed fund hence sometimes they perform poorly to the active funds, but they remove the fund manager bias because they invest passively in the stocks representing a particular index . they dont take any measures to beat the index by taking active risk.