Stocks or investment funds? Discover their main features

We'll show you the best way to make money from your savings
Many people want to invest, but they don't know whether to do so through stocks or investment funds. Both provide a way to invest in the stock market (and in the case of funds, in other types of assets as well), which can earn you a higher return on your capital. However, these two instruments have very different characteristics. The main considerations when choosing one option or another will be your financial knowledge and the time you have to manage your investments. In this article we discuss these two types of investment instruments and we tell you which one can benefit you most.
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The basics of investment funds

Investment funds are financial instruments that many investors rely on to channel their savings. They work like Collective Investment Institutions that pool money from multiple investors, known as shareholders, which is then managed by a team of professionals from the management company, in keeping with a specific investment policy for the purpose of maximizing the returns.

Since investment funds delegate the management to a team of professionals, they offer a good option for all those who do not have an in-depth knowledge of investing, or who simply prefer to dissociate themselves from investment decisions, either because they don't have the time or for other reasons. As a result, shareholders don't have to worry about managing their shares. All they have to do is sign an initial contract. They can then track the management of the fund but will not be directly involved in the trades made involving the fund's portfolio.

Another great advantage is that the transaction, operating and maintenance costs are borne by the fund, meaning you won't have to pay for them, nor will they lower the profit you receive from this type of investment. Investing large amounts results in economies of scale and provides access to markets and regions that would be very difficult for individual investors to access.

Funds also offer significant tax advantages. The capital gains/losses are subject to personal income tax at between 19% to 23%, but transfers between funds have no tax implications whatsoever. The net capital gain is only taxed when the fund is cashed in. This ability to indefinitely postpone the payment of taxes is very useful and makes it easy and fast to make tactical and strategic changes to an investment plan.

Funds also have the great advantage of making it easy to diversify your investments: the portfolio of an investment fund can be made up of approximately 30 or 40 stocks, a degree of diversification that is very difficult to achieve through direct investment, given the transaction costs. Investment funds make it possible to invest in a wide range of financial products (bonds, stocks, real estate, etc.) in different sectors, such as technology, health, real estate, etc., in markets in any country on Earth. You could, thanks to one of these funds, be investing in a leading biomechanical company in China.

Investment funds are a safer option than stocks. They are highly suitable for a more conservative investor profile, since there are funds that do not incur large risks. It's also a very good option if you don't want to invest a large sum of money. They are also the best option if you are looking for a long-term investment, since with this financial instrument, you won't have to pay taxes whenever you make changes to your portfolio.

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Stock markets

Investing in stocks requires a great deal of knowledge of stock markets and how stock market transactions are carried out and managed. Plus, if you choose this option, you will have to make sure that you have the time that's required to manage it. It's a more volatile market, which is why it requires more frequent monitoring.

As with investment funds, it is possible to invest with as little as 30 euros. Investing in stocks requires larger amounts due to the associated brokerage costs, especially outside the national market. The key is that the brokerage cost is a fixed percentage of the transaction amount, but there are minimum fees that significantly increase the cost of low-value trades. Furthermore, reduced amounts make it difficult to properly diversify.

Many banks offer their customers advice on stocks or investment funds, although there are also a number of intermediate financial institutions that offer this service and through which these products can be purchased.

At BBVA, we offer different plans for investing in the stock market or investment funds. Find out how BBVA Invest, our personalized advisory service, can help with investment products that are suited your preferences and goals. Go to bbva.es and find out which investment method works best for you.

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Investment fund tools

  • The BBVA investment fund calculator helps you to find out the returns you can get with your savings.
  • You don't know which investment fund best suits your needs? Our comparison tool will help you choose the best option.
  • Find the best investment fund in which to invest your savings and start to get a return on your money.
  • Calculate the returns of an investment quickly and easily using the calculator we provide you.