Explain Investment Types Like: Equities, Bonds, Mutual Funds, ETFs -

Table of Contents

📈 Equities (Stocks)

What they are: Buying a share means owning a small part of a company. When the company grows, the value of your shares can rise. If it pays dividends, you get a share of the profits
Pros & cons:
- Upside: High potential returns over the long run.
- Downside: Prices can be volatile and unpredictable.

What they are: You lend money to a government or company. In return, they pay you interest (usually fixed) and return your principal at maturity.
Pros & cons:
- More stable: Generally less volatile than stocks.
- Lower returns: Especially in low-interest-rate environments.
- Credit risk: You could lose money if the issuer defaults.

What they are: A pool of money from many investors used to buy stocks, bonds, or both, managed by professionals
Key features:
- Diversified portfolio: Spreads risk across many assets.
- Cost structure: Includes annual fees (expense ratios) and sometimes sales charges
- Trading frequency: Bought or redeemed once daily at the end‑of‑day Net Asset Value (NAV)

What they are: Similar to mutual funds—baskets of stocks, bonds, or other assets—but trade like individual stocks on an exchange schwab.com+2investopedia.com+2schwab.com+2.
Key differences from mutual funds:
- Intraday trading: Prices fluctuate and trades execute throughout the day
- Lower costs: Usually lower expense ratios and tax-efficient
- Flexibility: Can use limit orders, stop-loss, short sell, margin, etc.
- Trade like stocks: No minimum investment requirement—buy as little as one share

Investment Type	Ownership	Trading	Fees	Risk-Return Profile	Liquidity
Equities	Partial ownership in a company	Intraday	Broker commissions	High risk, high return potential	High
Bonds	Creditor to issuer	Varies: secondary market or held to maturity	Commissions, sometimes none	Lower risk, income-focused	Moderate to High
Mutual Funds	Shares in pooled investments	Once daily at NAV	Expense ratio + possible loads	Diversified; range from conservative to aggressive	Daily liquidity
ETFs	Like mutual funds, but flexible	Intraday on exchange	Lower expense ratios, bid-ask spreads	Diversified; typically passive	High

Equities: If you’re willing to accept volatility and seek growth.
Bonds: To balance risk, provide stable income, or preserve capital.
Mutual Funds: For professionally managed, diversified portfolios—beneficial for SIPs or retirement planning.
ETFs: Ideal if you want the diversification of funds with the flexibility and lower cost of stocks.