Corporate Class Funds: Maximize profits and minimize taxes 

When it comes to mutual fund investing, it's not just size that matters – it's structure. Structure counts when you redeem: If you are invested in traditional mutual funds outside your registered account, and want to sell units of a fund that have increased in value since you bought them, you could be hit by capital gains tax.
 
That's because a traditional mutual fund is structured as a trust, and its tax efficiencies are advantageous to the fund company, rather than to you, the investor. But corporate class funds are designed as a holding corporation, set up by a fund company to invest in a group of mutual funds, and to be tax-efficient to the investor. They protect you from capital gains tax – as long as you use the proceeds of a sale to buy into another class of the same fund company's holding corporation.
 
This means you can move in and out of funds within the same corporate class without triggering an immediate tax hit. And this is the beauty of corporate class funds: They allow you to lock-in the profits from a winning mutual fund. (Of course, taxes apply when the units of a corporate class fund are redeemed for cash.)
 
Corporate class funds are ideal for higher net worth investors who have maximized their RSPs and who tend to take a more aggressive approach to building an unregistered portfolio. They are also useful when rebalancing. Their value, however, is wasted on investors with a buy-and-hold strategy who are content to stick with a properly diversified portfolio.
 
When choosing a corporate class fund family, look for one with a wide variety of available funds. Ideally, it should include Canadian, U.S., global equity, sector and money market funds, as well as offering differing management styles. Fees are also a consideration: corporate class funds used to have higher fees, but today many fund companies are offering them with the same MER as their traditional counterpart.
 
For the right investor, corporate class funds can be a great way to make your portfolio more tax-efficient. And, over the long term, tax-efficient investing can have a positive impact on the value of your portfolio.

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