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Your questions: Gold stocks, fund fees and RRSPs

When I look at a mutual fund price quotation, is that how much I'll get if I sell that day, or does the management expense ratio (MER) have to be deducted first?

There are two issues here. Let's deal with the MER first.

The MER is the percentage of a fund's assets paid out annually for management fees and day-to-day operating expenses such as record keeping, audit and legal fees, and costs for sending out prospectuses and annual reports. These costs are deducted from the fund's assets on a daily basis, so when you look up the price of a fund, the MER has already been subtracted.

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That doesn't mean you'll get the quoted price if you sell, however. Mutual fund prices are calculated daily after the close of trading, so if you're looking up a fund quote, you're most likely seeing the previous day's price.

When you enter a sell order, the transaction will instead be executed at the current day's closing price, which could be higher or lower than the price in the quote. This is one of the drawbacks of mutual funds and a reason that some investors prefer exchange-traded funds (ETFs), which are priced and traded throughout the day.

Also keep in mind that some brokers require mutual fund orders to be submitted well before the close in order to guarantee that the transaction will be processed at that day's closing prices. TD Waterhouse, for example, requires orders by 3 p.m. and BMO InvestorLine has a 2 p.m. cutoff.

Why are gold mining stocks and gold mutual funds going down when the price of gold has been going up?

You're right that they are diverging. In the past year gold bullion has risen nearly 6 per cent, but the S&P/TSX global gold index – which includes miners such as Barrick Gold, Goldcorp and Newmont Mining – has plunged about 20 per cent.

One often-cited factor is the growing popularity of ETFs that invest directly in the metal. Given the choice between owning a gold ETF or a gold mining stock or fund that's subject to an assortment of risks – rising costs, political instability, labour issues, writedowns, ill-fated acquisitions, and so on – many investors prefer the former. With an ETF, the gold has already been pulled out of the ground, and someone will even store it for you.

Kinross Gold is a prime example of why some investors are shying away from gold miners. The shares have plunged about 40 per cent in the past year amid delays at its Tasiast project in Mauritania, which was hit by a $2.94-billion writedown.

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When RRSP principal and earnings that have accumulated over the years are converted to a RRIF, is it important how much is principal and how much is earnings? Do I need to track all of the earnings so that taxes can be paid according to the amount and source – e.g. dividends or interest?

No. Every dollar inside your registered retirement savings plan or registered retirement income fund is treated the same, regardless of whether it came from a contribution or from earnings such as dividends, interest or capital gains.

When you make a withdrawal, the amount is added to your income for that year and taxed at your marginal rate. The original source of the money doesn't matter; it's how much you withdraw that determines how much tax you'll pay.

If you hold your investments in a non-registered account, however, the source of the earnings does matter. Interest is taxed at your full marginal rate, whereas dividends are usually taxed at a lower rate thanks to the dividend tax credit. You'll receive information slips indicating the amounts of each type of earnings. Capital gains are also taxed favourably; only half of the capital gain is included in your income.

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About the Author
Investment Reporter and Columnist

John Heinzl has been writing about business and investing since 1990. A native of Hamilton, he earned a master's degree from the University of Western Ontario's Graduate School of Journalism and completed the Canadian Securities Course with honours. More

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