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Shares, funds, index funds, ETFs and investment companies. It is easy to get the impression that each type of investment requires a separate education. But the differences can be explained quite simply. The most important things are to understand what you own, what risk you are taking and what you pay.
Let us start with a common misconception: an ETF is also a fund. And a share in Investor is a share, even though it gives you indirect ownership of many companies. This comparison concerns equity investing and equity funds without leverage.
Shares: you choose the company
When you buy a share, you become a part-owner of a company. Your return comes from the share-price performance and any dividends. You decide which companies you want to own and when you want to sell.
You pay no fund fee to keep the share. However, you may pay brokerage commission, the bank’s fee for the transaction. You also face a spread, the difference between the buying and selling prices. A foreign-exchange fee may be added for foreign shares.
This freedom comes at a cost in work and risk. If you own only a few shares, one failed company can do serious damage to your savings. You must follow the companies yourself and diversify the risks.
Funds: you buy a ready-made basket
An equity fund pools money from many savers and invests it in several companies. You own units in the fund. Instead of buying every share yourself, you get a package.
An index fund tracks a specified index. An actively managed fund selects companies itself and usually tries to beat a benchmark index. Active management generally costs more, without the higher fee guaranteeing better results. The Swedish Financial Supervisory Authority explains the difference and compares fund fees here.
Ordinary funds are normally bought for an amount, such as SEK 500, and are therefore well suited to automatic monthly saving. You normally trade at a fund price set once a day, subject to the fund’s cut-off time. In other words, you do not know the exact price when you submit the order.
There is often no purchase commission, but check the terms. The ongoing fund fee is deducted from the fund’s value. It does not usually arrive as a separate bill, and reported fund returns are normally already net of the fund’s fees.
ETF: a fund traded like a share
ETF stands for Exchange Traded Fund. You buy fund units on the stock exchange during the trading day, much as you would trade Investor or Volvo.
Many ETFs track indices and have low ongoing fees. But ETF describes how the fund is traded, not how broad or safe it is. There are also actively managed ETFs and narrowly focused sector funds. A technology ETF, for example, can be much more concentrated than a broad global fund.
You need to calculate both the fund fee and the trading costs: commission, spread and any currency conversion. Some savings arrangements offer commission-free purchases, but other costs may remain. XACT explains how exchange trading and the costs work.
A simplified example: if the minimum commission is SEK 19 and you buy for SEK 500, 3.8 per cent immediately disappears in commission. That is a lot even if the annual fee is low. If you buy for SEK 10,000, the same commission corresponds to 0.19 per cent.
Investor: one share backed by several companies
Investor is an investment company. When you buy Investor, you become a part-owner of a company that in turn owns other companies. Its holdings include Atlas Copco, ABB, SEB and AstraZeneca. It also has unlisted operations through Patricia Industries and investments in EQT. Investor’s full portfolio is available here.
This provides diversification reminiscent of a fund, but Investor does not track a broad stock-market index. You get the portfolio chosen by the company’s management and board, with its particular concentration and financing.
No fund fee does not mean free management. Investor has staff and administrative costs, among others, that are borne by the company and therefore indirectly by its owners. Financing costs and costs in underlying investments may also affect the result. These cannot be compared directly with a fund’s advertised annual fee.
The share can also trade at a discount or premium to net asset value. Put simply, if assets after liabilities are estimated to be worth SEK 100 per share and the market price is SEK 85, the discount is 15 per cent. The discount can both widen and narrow. Your return may therefore differ from the performance of the underlying holdings. A discount is not a guarantee of a bargain either.
The differences in a table
| Investment type | What do you own? | Main costs |
|---|---|---|
| Individual share | Part of a company. | Commission, spread and possible currency conversion. No fund fee. |
| Ordinary equity fund | Units in a basket of shares. | Ongoing fund fee and any other fund or platform fees. |
| Equity ETF | Units in an exchange-traded equity fund. | Fund fee plus commission, spread and possible currency conversion. |
| Investment company such as Investor | Part of a company that owns other companies. | Trading costs and, indirectly, the company’s own costs. No fund fee. |
Small percentages become large sums
Assume that you invest SEK 100,000 for 20 years and the investment returns 7 per cent a year before an ongoing fee. We simplify by deducting the annual fee from the return and ignore tax, inflation and trading costs.
| Annual fee | Approximate value after 20 years |
|---|---|
| 0 per cent | SEK 387,000 |
| 0.20 per cent | SEK 373,000 |
| 1.50 per cent | SEK 292,000 |
The difference between 0.20 and 1.50 per cent is therefore about SEK 81,000. That consists of both the fees and the returns the money could otherwise have generated. The calculation is SEK 100,000 × (1 + 0.07 − fee)20. It is an illustrative calculation, not a forecast or a comparison of risk or expected returns between different products.
A more expensive fund can, of course, perform better. But it must first earn back the additional cost. And a share with no fund fee can be a terrible investment. Low fees help; they are no substitute for good holdings.
What would I choose?
For simple, automatic monthly saving, I think a broad index fund with a low fee is a good starting point. An ETF can be a good alternative when you want exposure to a particular market or theme and the trading costs are reasonable.
Individual shares suit people who want to select and follow companies. Investor or other investment companies can be a middle ground: several businesses in one share, but with the company’s own risks and a market price that may differ from its net asset value.
My most important rule is simple: do not buy an expensive solution for something you can obtain just as well at a lower cost. Read the fund’s key information document and the bank’s price list. Compare the same market and similar risks, and calculate the full cost of your particular purchases.
How do you invest—do you select the companies, buy a ready-made fund or combine the two?
Image: AI-generated illustration. The explanation is general and the examples are simplified.
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