Difference between Trust and Fund

A trust can be defined as a relationship in which one party possesses the right to manage the property of another. There can be two to three parties in the trust agreement. On the other hand, fund is a pool of resources which is handled by a professional investment manager for the investors to maximise the return of those resources by managing the underlying risks.

Moreover, trust agreement is made for specific period of time whereas the funds (e.g. mutual funds) are not bound by any kind of time period.

Instructions

  • 1

    Trust

    In legal terms, a trust is a relationship in which a party holds a property (tangible, intangible, personal or real) for the benefit of another party. A trust agreement came into existence when one party transfers a property to another for the advantage of a third party. It is established by a settler who is the person or party which transfers a property to a trustee. A trustee holds the property in the trust for the advantages of the beneficiary or beneficiaries. The trustee can be a real person or a legal person (company) or any other public body. Besides, in some cases, the settler himself can also be a beneficiary.

    It is to be noted that the settler can also be called as grantor, trustor, donor, creator or founder. The settler and trustee can be one person in case of self-declared trust. Although, the trustee possesses the legal title to the property in trust, however the beneficiary or the beneficiaries have the equitable title to the property and there is only a separation in the control and the ownership.

    Image courtesy: thetrustadvisor.com

  • 2

    Fund

    It is a collective investment scheme in which different investors pool their resources and hire a professional to manage those resources so as to earn good returns. The investment manager handles all the funds in the investment pool and manages the risks prudently to maximise the returns. Moreover, he is involved in making feasible investment decisions and to diversify the systematic risk in order to increase value of the investment.

    The most common types of funds include mutual funds which can be open ended or close ended. A common mutual fund contains a mix of stocks, bonds and government securities and is intended to maximise the return of the investors by minimising the risks.

    Image courtesy: ecu.edu

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