XEQT vs Mutual Funds: Why Canadians Are Making the Switch

I’ll never forget the day I logged into my bank’s investment portal and actually looked at the MER on my mutual funds. It was 2.1%. I’d been paying 2.1% every single year, and I didn’t even fully understand what that meant until I ran the numbers.

On a $50,000 portfolio, that’s $1,050 per year in fees — whether the fund goes up, down, or sideways. Over 25 years, assuming 7% average returns, that fee difference between a 2.1% MER mutual fund and XEQT’s 0.20% MER adds up to over $100,000 in lost wealth.

That was the day I decided to switch. And if you’re still holding Canadian bank mutual funds, this comparison might convince you to do the same.

The Fee Gap: XEQT vs Canadian Mutual Funds

This is the single biggest reason to switch, so let’s start here.

Canadian mutual funds are some of the most expensive in the world. The average equity mutual fund in Canada charges an MER between 1.8% and 2.5%. Here’s how the most popular ones stack up against XEQT:

XEQT charges 0.20%. The average bank mutual fund charges roughly 10x more. That difference compounds relentlessly over time.

What the Fee Difference Actually Costs You

Numbers on paper don’t hit the same as seeing what this means for your actual retirement. Here’s what happens to a $50,000 investment over time, assuming 7% gross annual returns:

Read that last row again. On a $50,000 investment held for 30 years, the fee difference costs you over $137,000. That’s not a rounding error. That’s a down payment on a house. That’s years of retirement income. That’s your money, going to a fund company instead of staying in your pocket.

And this assumes you only invest $50,000 once. If you’re adding money monthly — which most of us are — the gap gets even larger.

But Do Mutual Funds Perform Better?

This is the argument you’ll hear from bank advisors: “Yes, we charge more, but we add value through active management. Our fund managers pick better stocks.”

The data says otherwise. Consistently, overwhelmingly, and across basically every time period.

The SPIVA Canada Scorecard — an independent study published by S&P Dow Jones — tracks how many actively managed funds beat their benchmark index. Here are the results:

• Over 1 year: ~60% of Canadian equity funds underperform the index
• Over 5 years: ~80% underperform
• Over 10 years: ~85% underperform
• Over 20 years: ~90%+ underperform

The longer you hold, the worse active management looks. And this is before accounting for survivorship bias — funds that perform terribly often get quietly merged into other funds so they disappear from the record.

XEQT doesn’t try to beat the market. It gives you the market’s return, minus a tiny 0.20% fee. That approach beats the vast majority of actively managed mutual funds over any meaningful time period.

The Head-to-Head Comparison

Let’s put XEQT and a typical bank mutual fund side by side on every dimension that matters:

That last row is important. When your bank advisor recommends a mutual fund, they typically receive an ongoing trailing commission of about 1% per year from the fund’s MER. That’s 1% of your money, every year, going to your advisor — whether they call you or not, whether they provide value or not. It’s baked into the fee you’re paying.

This isn’t to say advisors are bad people. Many genuinely want to help. But the incentive structure means they’re paid to keep you in expensive funds, not to suggest you switch to a cheap ETF like XEQT.

Addressing the Objections

I’ve had this conversation with friends and family members many times. Here are the pushbacks I always hear:

“But my advisor provides peace of mind”

I understand this completely. Having someone to call when markets drop is genuinely valuable for some people. But consider: does your advisor actually call you during crashes? Or do you call them in a panic and they tell you to “stay the course”?

If the main value your advisor provides is preventing you from panic-selling, there are cheaper ways to get that same result:

• Set up automatic investments into XEQT (you won’t think about it)
• Delete your brokerage app from your phone during downturns
• Read posts on this blog to remind yourself why you’re investing long-term

You shouldn’t pay $1,000+ per year for someone to tell you not to sell.

“I don’t know how to buy ETFs”

This used to be a legitimate barrier. You’d need to open a discount brokerage account, learn about limit orders vs market orders, and figure out how many shares to buy.

Today? You can buy XEQT on Wealthsimple in about 30 seconds. Open the app, search “XEQT”, enter the dollar amount you want to invest, and tap buy. They even support fractional shares, so you can invest any amount — $50, $100, $237.48, whatever.

If you can use a banking app, you can buy XEQT. It’s honestly easier than most mutual fund purchase processes.

“My mutual fund has done well”

Has it? Pull up the actual returns and compare them to a global equity index over the same period. Many investors confuse “my account went up” with “my fund performed well.” Any equity fund should go up over time — the question is whether it went up enough compared to what a simple index fund would have returned.

Also check: are you looking at returns after fees? The number your bank shows you on statements is usually the net return, which already has the MER taken out. But to compare fairly, you’d need to see how much more you could have earned with lower fees.

“Switching sounds complicated”

It’s simpler than you think. If you’re selling mutual funds within a registered account (TFSA or RRSP), there are zero tax implications. You sell the mutual funds, the cash sits in your account, and you buy XEQT. Done in a day.

For non-registered accounts, selling mutual funds does trigger a taxable event (capital gains), so there’s a bit more planning involved. But even after paying tax on the gains, the long-term benefit of lower fees usually makes the switch worthwhile within a year or two.

We have a detailed guide on how to switch from mutual funds to XEQT if you want the step-by-step process.

The Tax Efficiency Advantage

This one flies under the radar, but it matters — especially in non-registered accounts.

Actively managed mutual funds buy and sell stocks frequently as the manager tries to outperform. Every time they sell a stock at a profit inside the fund, that capital gain gets passed through to you as a taxable distribution — even if you didn’t sell anything yourself. You can literally owe taxes on a mutual fund that lost money in a given year.

XEQT, by contrast, tracks an index. It rarely sells holdings. Turnover is extremely low. This means fewer taxable distributions, which means more of your money stays invested and compounding.

In a TFSA or RRSP, this doesn’t matter (those accounts are tax-sheltered). But in a non-registered account, tax efficiency can add another 0.3-0.5% per year in after-tax returns compared to an actively managed fund.

What XEQT Gives You That Mutual Funds Don’t

Beyond lower fees, XEQT offers several advantages that most Canadian bank mutual funds can’t match:

1. True global diversification. Many Canadian mutual funds are heavily concentrated in Canadian and US stocks. XEQT gives you exposure to 12,000+ companies across 40+ countries.

2. Complete transparency. XEQT’s holdings are published daily. You know exactly what you own at all times. Most mutual funds only disclose holdings quarterly.

3. No advisor gatekeeping. You don’t need to book an appointment or sit through a sales pitch. You buy XEQT directly, on your own terms.

4. Instant liquidity. XEQT trades on the TSX during market hours. If you need to sell, you get your money at the current market price. Mutual funds process redemptions at end-of-day NAV, and some have redemption fees for early selling.

5. Simplicity. One ticker replaces whatever collection of 3-5 mutual funds your advisor assembled. One holding to track, one MER to pay, one investment to understand.

When a Mutual Fund Might Still Make Sense

I want to be fair. There are a few narrow situations where mutual funds aren’t terrible:

• Workplace group RRSPs that only offer mutual funds and include employer matching. Take the employer match — it’s free money — even if the fund options have high fees. You can often transfer to a self-directed account after leaving the employer.
• Very small, automatic contributions. Some mutual funds let you auto-invest as little as $25/month with no commissions. That said, Wealthsimple now supports fractional shares and recurring buys, so this advantage has mostly disappeared.
• People who genuinely cannot manage their own investments. If you know with certainty that you’d panic-sell during a downturn without an advisor’s intervention, paying the higher MER might be worth the behavioural coaching. But try setting up automatic XEQT purchases first — most people find they don’t need the hand-holding once the process is automated.

The Real-World Impact

Let me put this in concrete terms with a realistic scenario.

Sarah, age 30, invests $500/month until age 65.

Sarah keeps an extra $244,597 by investing in XEQT instead of mutual funds. Same market. Same contribution. Same discipline. The only difference is fees.

That’s a quarter of a million dollars. Let it sink in.

The Bottom Line

Canadian bank mutual funds served a purpose when there were no good alternatives. Twenty years ago, buying an ETF meant calling a broker and paying $29 per trade. The landscape has changed completely.

Today, you can buy XEQT for free on Wealthsimple, set up automatic recurring purchases, and get better diversification, lower fees, higher tax efficiency, and full transparency — all without ever talking to a bank advisor.

The math isn’t ambiguous. The evidence isn’t debatable. XEQT at 0.20% beats the vast majority of Canadian mutual funds charging 1.8-2.5%, and the difference compounds into life-changing amounts of money over a career of investing.

Your future self will thank you for making the switch.