12 BEGINNER-FRIENDLY Differences Between Bonds, Stocks, and Mutual Funds

Confused about investing? Discover differences between bonds, stocks, and mutual funds; fast and easy.

You’ve probably heard of investing, or

Or people talking about bonds, stocks, and mutual funds,…

and you are wondering ‘Which investment is right for me?’ .

If this is you, at the end of this message you will discover the important differences, and you will easily choose where to start.

So investing,…

is putting to use the money you have saved to generate profit.

And the first basic question would be;

What are Stocks, Bonds, and Mutual Funds?

Stocks is the ownership part of a company or business.

The ownership of that company is divided into multiple units called shares, and are sold at a price respective to that company (stock price).

Examples of Tanzanian companies that sell shares are CRDB Bank, NMB Bank, and Tanzania Portland Cement (Twiga Cement -TPCC).

A bond is the kind of investment that involves you lending money to the government or an institution to earn interest over a period of time.

The government or institution then uses the money to generate profit via economic ventures and,

…the investor gets his/her money back at the maturity date (when the bond period is over).

Bonds issued by the government are regulated by the Central Bank of Tanzania (BoT) are known as Treasury Bonds.

Other types of bonds include;

✔ Municipal Bonds,

✔ Corporate Bonds, and

✔ International Bonds

Mutual Funds is the kind of investment whereby many people invest collectively and is managed by investment professionals.

The money collected by mutual funds is invested in the Financial Market to generate profit which is later distributed to investors.

Funds like these promise a return of your money up to 12% per annum…

although you shouldn’t forget that every money investment involves a ‘risk’ of losing money.

Examples of mutual funds include,

✔ Umoja Fund (UTT Amis)

✔ Watoto Fund (UTT Amis)

✔ Bond Fund (UTT Amis)

✔ Liquid Fund (UTT Amis)

✔ Faida Fund

✔ M-Wekeza, and

✔ Sanlam Pesa Money Market Fund

Differences between Stocks, Bonds, and Mutual Funds

	STOCKS	BONDS	MUTUAL FUNDS
MEANING	Company Ownership	Lending money to government or institutions	Many investors pool their investment
SOLD AS…	Shares, priced by the specific company	Bond Units of 100/= shillings	Units/’Vipande’ (Net Asset Value per Unit)
BENEFITS	DividendCapital Gain	Interest PaymentsCapital Gain; depends on the price of purchase or sale	1. Dividend2. Capital Gain
RATE OF RETURN (PROFIT)	The rate depends on the company performance	At least 8.5% for 3-year bonds	Most funds commit to about 12% per year
MINIMUM INVESTMENT AMOUNT	10 Shares of the company you will choose	500,000/= to 1,000,000/= depending on the type of bond	10,000/= depending on the fund of your choice
INVESTMENT PERIOD	Progressive	Years relevant to the bond	Progressive or Years relevant to other types of funds
LIQUIDITY	You can sell when there are buyers in the market	You can sell 2 business days after the purchase is completed	From instantly to 3 working days depending on the fund of your choice
RISK OF LOSS	High	Low	Moderate
DIVERSIFICATION	The investment is in stocks alone	The investment is in the bond you bought	Investment can be in different assets at the same time
COST	Involves tax deductions, brokers commissions, and investment institutions fees	Tax deduction on profit does not apply to bonds over two years	Deductions depend on the specific fund policy
PROFESSIONAL MANAGEMENT	You make the investment decisions	You make the investment decisions	Investment professionals make decisions
LITERACY BEFORE INVESTMENT	Very much needed	Important	Important