Venture Capital vs Mutual Fund

Business
November 20, 2018

VC, or venture capitals, have become increasingly more widespread and recognized today. However, there are still many people who understand that this kind of investment will yield high returns while being highly reliable compared to other types, especially Mutual Fund. This is a faulty perception. Today, we will discuss about the differences between these two investment approaches.

Venture capital funds are private equity stakes on emerging enterprises with strong growth potential even before its establishments. These are generally considered as high-risk investments that exceed the standards of bank loans or capital markets. As these are brand new companies, if they fail it will easily cost money. However, if they yield enough profit to be listed in the stock exchange or be able to sell shares, they will also lead to a high return of investment.

Therefore, investors should rely on their experience before investing. Generally, venture capitals come from wealthy investors, investment banks, and financial institutions.

With VCs, investors only put money into one company and wait for it to growth, become highly profitable, or enter the stock market. Therefore, VCs are not usually available for trading, as they require large amount of investments as well as the experience of investors.

On the other hand, mutual fund is an investment program that shareholders trade in diversified holdings and choose whether they want short-term or long-term profits. When results are considered satisfactory, investors have the freedom to adjust their investment patterns in accordance to market situations.

What is shocking is that most VCs are losing up to 90% profit!

Yes, you have read that right. VC investments are usually not profitable as they are especially high in risks. Their risks are even higher than investing in listed stocks because they are new companies without stable profit and with low liquidity; thus, it is not possible to trade shares through the stock exchange. Over time, investors will gradually withdraw funds because while the companies could not be listed in the stock market, yielding profit will also be difficult.

In conclusion, VC investments may be deemed as a far-fetched approach to investors who wish to earn profit from regular investments all due to the great demand for funds as well as experience. Therefore, when approached to become an investor, they may need to do rigorous studying.

Always bear in mind that all types of investments come with high risks.