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A question I have never once received from a reader: How do I switch my exchange-traded funds into mutual funds?

This occurred to me the other day as I read yet another in a long series of queries from readers about moving money in the opposite direction. “How do I switch my mutual funds to ETFs?” an Alberta-based reader asked. “I hold my mutual fund in an RRSP account with my bank.”

I expect to get more questions like this in the months and years ahead. With their comparatively high fees, mutual funds are struggling to compete with the returns available from low-cost ETFs. A balanced mutual fund with a management expense ratio of 2 per cent is up against it when government bonds with maturities of two through 10 years yield well less than 1 per cent and stock markets are contending with uncertain prospects for the economy to resume its pre-pandemic growth track.

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You can get balanced ETFs with MERs of 0.2 to 0.25 per cent. Yes, you might have to pay as much as $10 in commissions to buy these funds, but the long-term benefit of paying a low MER is a far more important factor.

Switching mutual funds into ETFs is simple, especially in this reader’s case because he has a registered account – a registered retirement savings plan – and thus doesn’t have to worry about the potential for taxable capital gains when he sells the mutual funds. Here’s a four-step process:

  • Open an RRSP account at an online brokerage: Use the broker at the bank where the mutual funds are held, or another one.
  • Complete an account-transfer form: Request the mutual funds be transferred to your new brokerage account “in kind,” which means they will appear in the new brokerage account; in doing so, you have control over when you sell the mutual funds.
  • Identify the ETFs you want: The quick, smart move is to find a balanced ETF that suits your investing profile and use it as your one and only holding; you can move to individual ETFs later if you feel the need.
  • Sell the mutual funds, buy your ETF(s): Welcome to low-fee city.

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