What Is Equity Or Fund Balance?

Do you need to know the difference between what is equity and fund balance? "Equity" and "Fund Balance" are not necessarily the same thing.  Equity, with regard to investments, refers to stocks.  Whereas Fund Balance, with regard to investments, is referring to mutual funds, where money is diversified across multiple stocks for the investor's benefit.

For example, if you have $100 to invest, and you choose to buy $100 of stock, whatever company you felt like investing in, you are putting $100 into one company.  On the other hand, if you choose to invest that $100 in a mutual fund, you are giving the money to a pool which is then used by a financial professional who invests across multiple stocks to earn you investment income while trying to minimize risk.

The term equity refers to ones ownership in a corporation, thus the stocks you have purchased.  Those stocks are then your equity. 

In the case of mutual funds, multiple investors put money into a pool which is then used by a professional, or group of professionals, to earn money from multiple stocks, as well as bonds, money markets, securities, precious metals, and other methods along these lines.  The methods used by the mutual fund invested in is usually explained by the professional so the investor is aware of what their money is going to and what the potential for earnings can look like.  

The benefits of mutual funds include lower investment costs, because these fees are spread across all the contributing investors to the pool, as well as the expertise of the overseers who manage the fund and invest the money.  The financial definition of fund balance is the amount of the assets minus the liabilities.  Liabilities would be anything that is owed, in this case the fees for the investments or the management of the investments, for example.  Essentially, the fund balance is like the "profit." 

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