Difference Between Fund and Security
Key Difference: Where fund is an investment vehicle that allows a large number of people to pool their money together in order to invest in a range of different securities such as stocks, bonds, property or commodities. Security is a financing or investment instrument bought and sold in financial markets, such as bonds, debentures, notes, options, shares (stocks) and warrants.
In simple words funds are of two types. One where individual and institutional investors place money in different types of funds with the goal of earning money. Eg.mutual funds where money is pooled from many individuals and then the fund manager uses it to invest in a broad range of assets such as cash, bonds, equities, property etc.
In the realm of investments, some types of funds include:
Mutual funds: investment funds managed by professional managers who allocate the funds received from individual investors into stocks, bonds and/or other mutual funds.
Money market funds: highly liquid mutual funds purchased to earn interest for investors through short-term interest-bearing securities such as Treasury bills and commercial paper.
Exchange-traded funds (ETFs): similar to mutual funds, but traded on the public exchanges like stocks.
Hedge funds: investment vehicles for high-net-worth individuals designed to increase the return on investors’ pooled funds by incorporating high-risk strategies such as short selling, derivatives and leverage.
Government bond funds: investors looking to put their money away in low-risk investments can do so through Treasury securities, such as Treasury bonds, or agency-issued debt, such as securities issued by Fannie Mae. Both alternatives are backed by the U.S. government.
Other types of funds are the ones which are either allocated or set aside money. Eg. Government relief funds or the funds an individual set aside for future use.
The word 'secure' entered the English language in the 16th century. It is derived from Latin securus, meaning freedom from anxiety: se (without) + cura (care, anxiety)
Security is a financing or investment instrument issued by a company or government agency that denotes an ownership interest and provides evidence of a debt, a right to share in the earnings of the issuer, or a right in the distribution of a property.
Securities include bonds, debentures, notes, options, shares, and warrants but not insurance policies, and may be traded in financial markets such as stock exchanges.
Ex. A good investment portfolio will contain a diversity of types of security so that any one investment does not make or break the portfolio owner.
Primarily there are three types of securities:
1.An equity security represents ownership interest held by shareholders in an entity (a company, partnership or trust), realized in the form of shares of capital stock, which includes shares of both common and preferred stock. Holders of equity securities are typically not entitled to regular payments (though equity securities often do pay out dividends), but they are able to profit from capital gains when they sell the securities (assuming they've increased in value, naturally).
2.A debt security represents money that is borrowed and must be repaid, with terms that stipulates the size of the loan, interest rate and maturity or renewal date.
3.Hybrid securities, as the name suggests, combine some of the characteristics of both debt and equity securities. Examples of hybrid securities include equity warrants (options issued by the company itself that give shareholders the right to purchase stock within a certain timeframe and at a specific price), convertible bonds (bonds that can be converted into shares of common stock in the issuing company) and preference shares (company stocks whose payments of interest, dividends or other returns of capital can be prioritized over those of other stockholders).
Some other definitions of the word security also exist in different contexts.
1.Banking: An asset pledged to guaranty the repayment of a loan, satisfaction of an obligation, or in compliance of an agreement.
Security gives a lender or oblige a legal right of access to the pledged asset and to take their possession and title in case of default for a foreclosure sale.
2. Computing: The extent to which a computer system is protected from data corruption, destruction, interception, loss, or unauthorized access.
3. The prevention of and protection against assault, damage, fire, fraud, invasion of privacy, theft, unlawful entry, and other such occurrences caused by deliberate action.
Ex. The people were really worried about intruders so they had lots of types of security including a dog and an alarm system with a panic button.
References:fidelityinternational.com,morningstar.co.uk,businessdictionary.com, wikipedia.org(security and security_(finance),myaccountingcourse.com, investopedia.com(funds and security) Image Courtesy:yourstory.com,veem.com