Canadian investors want control, transparency, and cost-efficiency from their portfolios, especially if they are building passive income strategies or planning for retirement.

Government guidance still points investors toward basic planning steps (how much you’ll need, types of retirement income, saving habits, etc.), however, it does not specify which financial product is most suitable. In this context, understanding the distinctions between ETFs and mutual funds becomes particularly valuable.¹ That’s where understanding the structure of ETFs versus mutual funds helps.

So, let’s have a look at traditional mutual fund strategies and more modern ETF strategies to understand their key differences and so you can decide which approach fits your portfolio.

The “Old Model”: Mutual Funds

Mutual funds remain a simple, familiar choice for many investors: you buy into a pooled fund, and the fund issues a NAV (net asset value) that determines your price once per day, after markets close. That end-of-day pricing can be convenient for regular contributions, but it removes intraday control and trading.²

Mutual funds can still make sense for automatic investing plans, employer/retirement arrangements, or when advice is bundled with management. However, their structure can carry higher ongoing costs and less intraday flexibility than ETFs.

Every mutual fund comes with an expense ratio. This figure shows the ongoing cost of owning the fund and is expressed as a percentage of the fund’s total assets. The expense ratio typically covers management fees, the cost of paying professionals to run the portfolio, and may also include marketing costs (known as 12b-1 fees).

On top of the expense ratio, some mutual funds charge additional fees. These can include account fees if your balance falls below a minimum threshold, redemption fees if you sell too quickly, exchange fees when you move money between funds in the same company and even purchase fees when you first buy into the fund.³

For investors, the key takeaway is that the expense ratio is just the starting point. Other charges can add up and eat into your returns over time, so it’s important to understand the fee structures.

The “New Model”: ETFs

ETFs trade on an exchange like a stock does, so you can buy or sell during market hours which gives DIY investors more control over execution and price.

ETFs have also expanded far beyond plain-vanilla index products. The modern ETF market covers equities, fixed income investments, commodities, and strategy wrappers that aim to deliver specific yield or risk outcomes.⁴

Two important Canadian nuances: many ETFs disclose holdings frequently (which supports transparency) and most offer intraday liquidity, but disclosure practices and the specifics of some active ETF structures are under regulatory review in Canada, thus understanding the transparency level of your funds is important, as they can vary.⁵

Like mutual funds, ETFs also have an expense ratio, which covers the cost of managing the fund. In most cases, ETFs charge lower expense ratios than mutual funds, especially for index-tracking products. This makes them attractive for cost-conscious investors.

Unlike mutual funds, ETFs usually don’t have marketing fees, and they rarely impose account or redemption fees. Instead, the main “extra” cost to be aware of is the trading commission or bid-ask spread you pay when buying or selling shares on the exchange. Depending on your brokerage, commissions may be zero, but the spread (the slight difference between the buy and sell price) is a standard market cost.⁶

The result, however, is that ETFs tend to be more transparent and predictable on fees. You know the expense ratio upfront, and aside from modest trading costs, that’s usually it. For DIY investors, this structure can make ETFs a more cost-efficient option over the long run.

How ETFs Can Power Income Strategies

If your goal is income investing, whether dividend investing, passive income strategies, or retirement income strategies, ETFs are now a pragmatic way to implement those approaches:

• Fixed income core: Bond ETFs give easy exposure across maturities and credit profiles without buying individual bonds, and the market’s fixed-income ETF coverage has expanded sharply in recent years.⁷
• Dividend and income equity exposure: For dividend investors and those pursuing ETF income strategies, ETFs offer diversified access to dividend-paying companies (and may simplify rebalancing and cash distribution).⁸
• Covered call strategies: ETFs that implement covered call or buy-write strategies generate option premium income at the fund level, turning equity exposure into a higher cash distribution for investors. These structures can suit income-oriented investors but come with trade-offs, notably capped upside potential in strong rallies.⁹

Putting those tools together—fixed income ETFs for a core, dividend and income equity ETFs for yield, and covered call ETFs for enhanced distributions—is one way investors can build layered, ETF-based retirement income strategies or passive income strategies.

Tax And Reporting: A Quick Canadian Reality Check

Taxes matter for income strategies. Dividend income can benefit from the dividend tax credit for Canadian eligible dividends, while capital gains and foreign income have different reporting and withholding rules.

For tax reporting, mutual funds typically issue T-series slips (T3/T5) and have established rules for how distributions and capital gains are reported.¹⁰

With ETFs, you’re generally taxed in two ways: when you sell your units for more than you paid, and when you receive distributions. Selling at a profit creates a capital gain, and only half of that gain is taxable at your marginal rate. Distributions—whether dividends, interest, foreign income, or return of capital—are also taxed differently depending on their source. For example, eligible Canadian dividends benefit from the dividend tax credit, interest income is fully taxable and return of capital isn’t taxed right away but lowers your cost base for future capital gains.

The key advantage of ETFs is their efficiency. Mutual funds often pass along capital gains to all investors in the fund, even if you haven’t sold your own units—leading to unexpected tax bills. ETFs, on the other hand, rarely distribute capital gains. That means you’re generally only taxed when you decide to sell or when you receive income distributions. For long-term investors, this control can make ETFs a more predictable and tax-friendly choice, alongside their other benefits of lower fees, transparency, and liquidity.¹¹

ETF Income Strategies With Evolve ETFs

If you’re looking for an opportunity to diversify your portfolio with fixed-income holdings like bonds, one option is investing in fixed-income ETFs.

Evolve Enhanced Yield Bond Fund (BOND ETF) provides investors with a low-cost fixed income solution that seeks to deliver attractive monthly income and long-term capital appreciation. To enhance yield, as well as mitigate risk and reduce volatility, BOND will initially employ an active covered call option writing program on 50% of the portfolio.

For more information on Evolve Enhanced Yield Bond Fund (BOND ETF), explore fund details here.

Or perhaps you’re looking for an investment solution that will keep you invested in stocks while offering the opportunity to take advantage of market volatility?

Evolve’s S&P/TSX 60 Enhanced Yield Fund (ETSX ETF) is designed to provide investors with the performance of the S&P/TSX 60 Index, with the addition of enhanced yield through active covered call strategies on the underlying securities. This Fund invests primarily in the equity constituents of the S&P/TSX 60 Index, while writing covered call options on up to 33% of the portfolio.

Or maybe you want a way to tap into Canada’s leading companies while generating enhanced income through a covered call strategy, modest leverage*, and twice per month distributions?

The Evolve Canadian Equity UltraYield ETF (CANY) aims to offer investors modestly levered exposure (1.33x) to a portfolio of leading Canadian equity securities that have the potential to generate significant option premiums.* CANY will employ a covered call option, the level of which may vary based on market volatility and other factors.

For more information on this fund, visit evolveetfs.com/cany/.

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Source: Getty Images Credit: Nuthawut Somsuk

ENDNOTES

1. “Retirement planning,” Financial Consumer Agency of Canada, April 10, 2025; https://www.canada.ca/en/financial-consumer-agency/services/retirement-planning.html
2. Pareto, C., “Mutual Funds vs. ETFs: Key Differences and Investment Insights,” Investopedia, August 31, 2025; https://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp
3. Boyte-White, C., “ETF vs. Mutual Fund Fees: How to Compare Them,” Investopedia, June 27, 2025; https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp
4. Hill, J.M., Kashner, E. & Nadig, D., “A Comprehensive Guide to ETFs (2nd Edition): Module 1: ETF Features and Evolving Landscape,” CFA Institute Research Foundation, 2025; https://rpc.cfainstitute.org/sites/default/files/docs/research-reports/hill_rf_brief_2025_etfs-evolving_module-1_2ed_online.pdf
5. Ta, T-H., Cheng, J., Yang, K. & Redman, P., “OSC ETF Study: An Empirical Analysis of Canadian ETF Liquidity and the Effectiveness of the Arbitrage Mechanism,” Ontario Securities Commission, June 2025; https://www.osc.ca/sites/default/files/2025-06/pub_20250619_osc-etf-study.pdf
6. Ita, D-A., “How Are ETF Fees Deducted?,” Investopedia, April 28, 2025; https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp
7. Soubeyran, S. & Marshall, R., “Fixed Income Insights,” FTSE Russell, July 2025; https://www.lseg.com/content/dam/ftse-russell/en_us/documents/market-insights/fixed-income/canada/fixed-income-insight-report-july-2025-canada.pdf
8. Kagan, J., “Understanding the Canadian Dividend Tax Credit: A Complete Guide,” Investopedia, September 07, 2025; https://www.investopedia.com/terms/d/dividendtaxcredit.asp
9. Baker, B. & Kennedy, E., “Covered call funds: Here’s how they work,” Bankrate, February 05, 2025; https://www.bankrate.com/investing/covered-call-funds/
10. “Tax treatment of mutual funds,” Canada Revenue Agency, July 24, 2025; https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/tax-treatment-mutual-funds.html
11. Moskowitz, D., “How ETF Dividends Are Taxed,” Investopedia, August 24, 2025; https://www.investopedia.com/articles/investing/061615/how-etf-dividends-are-taxed.asp

 

DISCLAIMER

Published October 14, 2025.

Evolve Funds Group Inc. is the investment fund manager and portfolio manager. All funds described herein is offered by Evolve Funds Group Inc., and distributed through authorized dealers.

The information contained herein is a general description and is not intended to be specific investment advice to any particular investor nor intended to be investment or tax advice. You should not act or rely on the information contained herein without seeking the advice of an appropriate professional advisor. The information contained herein is intended for informational purposes as a summary only, does not constitute an offer to sell any securities or a legally binding obligation, it is qualified entirely by, and should be read in conjunction with, the more detailed information appearing in the prospectuses found on the Evolve Funds Group Inc website at https://evolveetfs.com/

*Leverage increases risk.

Commissions, trailing commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds. Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained herein are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Evolve Funds Group Inc. and the portfolio manager believe to be reasonable assumptions, neither Evolve Funds Group Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain information contained herein is obtained from third parties. Evolve Funds Group Inc. believes such information to be accurate and reliable as of the date hereof, however, we cannot guarantee that it is accurate or complete or current at all times.  The information provided is subject to change without notice.