Money, finance and funds: How are they different?

Summary: The terms finance, fund, and money are often used interchangeably but they have differing connotations. Read on to find out how finance, fund & money differ.

02 Dec 2022 by Team FinFIRST

Usually, people use the terms money, finance, and fund interchangeably, thinking of them as synonyms. However, they are quite different. Read on to find out what is finance, what is money, and what is fund. Also, learn about money vs finance and funding vs financing.

What is money?

Money is what you work for every day. Waking up early by sacrificing your sleep, battling traffic jams, toiling at a desk, and coming home late is essentially all for the sake of making money. But what if someone asks you to describe money? Here’s what you can say:

Essentially, money is a commodity people accept as payment for goods and services or repayment of debts. With a store of value, money includes cash and cash equivalents like treasury bills, commercial paper, certificates of deposit, etc. Cash equivalents are highly liquid instruments that you can readily convert into cash. Money is a medium of exchange, a unit of account, a store of value, and a standard for deferred payments.

What are funds?

A fund refers to an amount of money kept aside for financial goals such as buying an asset, planning for retirement, or tiding over an emergency. Think of it as an amount you keep aside or invest for your next vacation, a new phone, or even a luxury handbag. As part of financial planning, the investment is usually made under professional management.

Businesses, governments, and individuals use funds to fulfil their financial goals. If invested, funds help you earn interest or dividends. A fund can be an insurance fund, exchange-traded fund, pension fund, mutual fund, etc. Mutual fund schemes can offer financial security, tax savings, etc., that help you fulfil your dreams. For instance, with IDFC FIRST Bank, you can invest in mutual funds of your choice and create wealth for your financial goals.

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What is finance?

Imagine if you were looking to start a business. The first thing you need (besides a brilliant idea) is finance. Finance refers to the process of raising capital. It is a broad concept that involves the creation, management, and study of money. Savers and investors accumulate funds to earn dividends or interest. These funds can then be channelised to businesses, governments, etc., who borrow at a specific interest rate.

Insurance firms, commercial banks, Non-Banking Financial Companies (NBFCs), investment companies, etc., can help channelise funds from investors to borrowers. Finance activities can include stock investment, loans, savings, etc. Also, finance by itself could refer to business finance, public finance, or personal finance.

Money vs finance

Money	Finance
Money is a part of finance.	Finance is a broader concept that includes the management, creation, and study of money.
The money includes cash and cash equivalents that are readily available for use.	Finance includes personal, public, and corporate finance.

Fund vs finance

Fund	Finance
A fund involves a set amount of money kept aside for specific financial goals such as retirement, higher education, or a wedding in the family.	Finance involves building or raising money. It also involves the repayment of the principal sum along with regular interest payments.

Funding vs financing

Funding	Financing
Funding is the act of injecting money towards a specific financial goal without the need for repayment.	Financing is the lending or borrowing of a sum of money that requires repayment with an interest rate.
It may be granted to businesses by investors,banks and governments.	Financing is offered by venture capitalists, banks, shareholders, etc.

Conclusion

Businesses, governments and individuals need capital for multiple needs, but the source of capital can vary. It may involve money/cash equivalents, funds, or finance. The terms may seem similar, but it is essential to understand the difference between them. Once you know this, you can use them correctly and also understand the context clearly.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.