The Differences Between Mutual Funds Vs. Fixed Income Securities

The main difference between mutual funds and fixed income securities hinders on the return. Mutual funds do not provide guaranteed returns while fixed income securities do. However, both funds carry risks that investor should consider carefully before investing.

Mutual Fund

A mutual fund is a pool of money from many investors that is managed by a professional for the benefit of all investors in the fund. The money is used to invest in a variety of securities. The goal is to diversify the portfolio in order to maximize return while minimizing risk.

Risks of Investing in Mutual Funds

Like investing in stocks, there is no guarantee of return. It is possible to lose some or all of the money invested in a mutual fund.

Fixed Income Securities

Fixed income securities are investment that yields a regular (or fixed) return. Typically, investors are paid a guaranteed interest at regular intervals. A fixed income security can also be referred to as a bond or corporate bank.

Risks of Investing in Bonds

Bonds also carry a risk in that if the company goes bankrupt, it may not be able to honor its bond obligations. It is important to fully research the company or entity before investing in bonds.

Which is Better?

This depends on the investor. Both mutual and fixed income securities are typically considered "safer" investments compared to stocks. Fixed income securities are the safer of the two but usually yields a lower rate of return.