The TD e-Series funds are a darling of semi-DIY investors who want to lower their investment fees, but are not yet willing or able to go full-bore with using a self-directed discount brokerage account. Investment fees in the form of a Management Expense Ratio (MER) forms the bulk of fees that investors pay when they invest in traditional mutual funds.

It is a known fact that MERs are significantly higher in Canada than elsewhere in the developed world. With equity mutual funds in Canada “boasting” an average MER of 2.35%, the average investor is faced with four broad options:

1. Continue investing in expensive mutual funds and take whatever returns you get. Enjoy the ease of having a 100% hands-off approach to your investment portfolio. Read more on Investment Fees for Mutual Funds here.

2. Invest with a robo-advisor using low-cost ETFs and a hands-off approach as well. Pay a lower MER than Option 1 at approximately 0.75% (including ETF fees). Read the Complete Guide To Robo-Advisors here.

3. Use Index Funds that are already individually diversified to build your investment portfolio. Pay a much lower MER (1% or less) and be prepared to re-balance your portfolio 1-2 times a year. Read more on Index Investing here.

4. Self-directed investing (aka DIY investing) using a discount brokerage account to purchase stocks, ETFs, and more to create portfolios you are comfortable with. With this option, you will also need to rebalance your portfolio as often as is necessary. Transaction costs (i.e. buying and selling commissions) can become significant depending on your trading frequency.

When making a choice between semi-DIY with index funds and full DIY with ETFs/stocks, it is important to consider your account size and how often you plan to trade. It is generally advised to stick with other low-cost options like TD e-Series Funds (indexing) and robo-advisors when your account portfolio is under $50K. This is to account for other transaction costs that can become significant if you trade frequently and which erase your gains from choosing to DIY on a small portfolio.

An Overview of TD e-Series Funds

A common question I get is: “What is the difference between an index fund and a mutual fund?” In summary, an index fund is a mutual fund that is passively managed and which replicates the returns of a benchmark index (e.g. the S&P 500). Read more on Mutual Funds here.

TD Bank offers several funds to investors. To identify the ones that are designated as e-Series, look for the “-e” attached to the fund name. Some of the commonly used ones include:

1) TD Canadian Bond Index-e (TDB 909)

  • Benchmark: Tracks the FTSE TMX Canada Universe Bond Index
  • Asset Mix: 100% Bonds
  • MER: 0.50%
  • Risk Rating: Low

2) TD Canadian Index-e (TDB900)

  • Benchmark: Tracks the S&P/TSX Composite Total Return Index
  • Asset Mix: 96% Equity (94% Canadian stocks, 2% US Stocks) and 4% Income Trust Units
  • MER: 0.33%
  • Risk Rating: Medium

3) TD International Index-e (TDB911)

  • Benchmark: MSCI EAFE Index
  • Asset Mix: 99% International stocks and 1% Income Trust Units
  • MER: 0.51%
  • Risk Rating: Medium

4) TD U.S. Index-e (TDB902)

  • Benchmark: S&P 500 Total Return Index
  • Asset Mix: 97% US stocks and 3% International stocks
  • MER: 0.35%
  • Risk Rating: Medium

5) TD International Index Currency Neutral-e (TDB905)

  • Benchmark: MSCI EAFE – local currency
  • Asset Mix: 96% International stocks, 1% Cash and equivalents, 1% Income Trust Units
  • MER: 0.52%
  • Risk Rating: Medium

6) TD U.S. Index Fund (US$)-e (TDB952)

  • Benchmark: S&P 500 Total Return Index
  • Asset Mix: 97% US stocks and 3% International stocks
  • MER: 0.35%
  • Risk Rating: Medium

7) TD U.S. Index Currency Neutral Fund-e (TDB904)

  • Benchmark: S&P 500 Index – hedged in CAD
  • Asset Mix: 95% US stocks, 2% International stocks, and 2% Cash and Equivalents
  • MER: 0.51%
  • Risk Rating: Medium

8) TD Nasdaq Index Fund-e (TDB908)

  • Benchmark: Nasdaq 100 Index
  • Asset Mix: 95% US stocks, 3% International stocks, 2% Others
  • MER: 0.50%
  • Risk Rating: High

9) TD European Index Fund-e (TDB906)

  • Benchmark: MSCI Europe Index
  • Asset Mix: 100% International stocks
  • MER: 0.50%
  • Risk Rating: Medium

10) TD DJIA Index-e (TDB903)

  • Benchmark: DJIA Total Return Index US$
  • Asset Mix: 100% stocks
  • MER: 0.33%
  • Risk Rating: Medium

Opening a TD e-Series Funds Account

The availability of information on how to open a new TD e-Series Funds Account has historically been very poor. However, TD have recently made efforts to provide more details on their website and it appears that their local branch employees are also more familiar with the product.

Simply put, you will want to walk into any local TD branch and do the following:

  1. Ask to open a TD Mutual Funds account
  2. Complete the investor profile questionnaire
  3. Sign their forms, including the Understanding and Consent Form
  4. Provide a void cheque so you can later setup pre-authorized purchase on your online account
  5. Request your TD mutual funds account be converted to a TD e-Series Funds account

Following completing the above steps, you will receive a confirmatory email from TD (in a few days) with directions on how to access your account through TD’s Easy Web online portal. Note that if you have a TD Direct Investing account, you already have access to buy e-Series funds.

Sample RRSP and TFSA Portfolios with TD e-Series Funds

To invest with the e-Series Funds, you probably want to combine a few of them to create a portfolio that reflects your risk tolerance and investing strategy i.e. conservative, balanced. or aggressive. A balanced TFSA/RRSP portfolio using the e-Series funds would look similar to this:

  • MER: 0.44%
  • Asset Mix: 60% Stocks and 40% Bonds
  • Risk Rating: Low to Medium

For more information on how I vary the e-Series funds mix in a RESP portfolio based on a kid’s age, click here.

Re-balancing a TD e-Series Funds Portfolio

When you make up your portfolio using several funds, you will need to re-balance one to two times per year at a minimum. This is because the different funds in your portfolio will perform differently causing your asset allocation to stray away from your intended targets. For a step-by-step tutorial on how I re-balance my portfolio, click here.

Conclusion

The TD e-Series funds are one of a few options Canadians have when they want to invest using index funds. Here’s a list of the other index fund option available. Re-balancing your portfolio should take no more than 20 minutes or less per year. However, if you would rather not have to re-balance yourself, consider the services of a robo-advisor.

Related:

TD e-Series Funds Review
  • Fund Options
  • Fund Fees
  • Minimum Investment
  • Account Opening
  • Portfolio Maintennance
  • Pre-authorized Purchases
4.6

Summary

You can purchase individual TD e-Series index funds and combine them in different proportions to make up your own diversified portfolio.