What is better: shares or investment funds?

Shares or investment funds?

Both are products that involve putting our capital to work in order to obtain profits. But to answer this question, let us first recap what these two concepts are:

Firstly, shares are the portions of capital into which a company or enterprise is divided for the purpose of raising funds; Companies issue them, sell them and obtain financing from them. The value of all shares in a company represents its market capitalisation, and each share confers economic and political rights on the holder, who thus becomes a part owner of that company, and can participate in profits or vote at shareholders' meetings, depending on the proportion of shares held.

An investment fund is a savings instrument made up of the contributions of its participants and managed by a company that invests it in financial assets in order to obtain a return.

That said, when asked whether it is better to invest in shares or funds, the answer will obviously vary depending on the strategy we want to implement, as well as our knowledge and the results or returns we are aiming for, and so on.

When investing, funds are generally a safer option than shares. Another major advantage of these is that they can be adapted to the different investor profiles: some of them, such as money market funds or fixed income investments, do not involve high risks.

For tax purposes, both funds and shares are taxed on the income obtained. In the case of funds, the difference between the net asset value of the units at the time of subscription and at the time of redemption is taken as a reference. Whereas for shares, the sale value minus the purchase value is taken as the reference value.

By contrast, shares or equity funds depend mainly on the volatility of the markets and therefore carry a higher investment risk.   

In order to invest in them, you must have a certain amount of knowledge of the stock markets, as well as control over the management of all the operations involved in stock market trading. In general, direct investment in equities generally requires more time and monitoring than investing in investment funds, although this will depend on your strategy. A long-term equity investment strategy does not require much monitoring, although we should always manage our risk by using stop orders to protect our investment to some extent.

To conclude, we can say that, although both are products that pursue a return on savings, there are important differences in financial terms and risk exposure. For this reason, it is essential to be well informed about the investment processes of each of them and to choose the one that best suits our profile and our expectations.