The only real similarity between blue-chip stocks, mutual funds and exchange-traded funds (ETFs) is that they are all potentially equity investments aimed at creating a profitable return on investment. The three are essentially different vehicles for investment, even though their basic investments may overlap at times.

Blue chip or other individual stocks, mutual funds and ETFs offer ways for an investor to approach the markets and structure his or her investments.

Blue Chip Stocks

Blue-chip stocks are individual stocks of large, recognized, well-established firms that have consistently provided good, solid – although perhaps not dramatic – returns on investment for shareholders. They are not typically high-growth stocks, but they are consistent growth stocks.

Blue chips are companies that are considered very financially sound, with very large market capitalization, generally in the business of selling widely purchased goods or services. They are typically the top companies in their respective industries and/or sectors and are solidly profitable year in and year out.

Most blue-chip stocks also have a long, consistent record of paying dividends. Blue-chip stocks are commonly included in major market indexes, such as the Dow Jones Industrial Average (DJIA), the S&P 500 Index or the FTSE index. Examples of blue-chip stocks are General Electric and Coca-Cola.

Mutual Funds

Rather than being investments in a single stock such as a blue chip, mutual funds take the approach of investing in a basket of equities or other investment assets. There is a wide variety of mutual funds, sufficient to suit the investment tastes of virtually any investor. There are mutual funds known as index funds that mirror a major stock market index, such as the S&P 500. There are mutual funds devoted to different sectors such as telecommunications, metals and mining, or oil and gas, and mutual funds directed toward specific industries within sectors.

Funds are also designed according to investment goals. There are income funds that invest solely in solid stocks that pay high dividends and growth funds that focus on stocks with the highest growth potential. Some mutual funds are dedicated to one specific investment area, such as gold or silver. The basic approach of mutual funds is to create a portfolio of investments that the fund manager selects with the goal of overall maximum profitability.

Exchange-Traded Funds

Exchange-traded funds (ETFs) are traded in the same way that individual stocks are. In this way, they offer more flexibility than mutual funds. Investors in ETFs can sell short and trade on margin. ETFs contrast with mutual funds whose shares are purchased from the company operating the fund. However, much like mutual funds, ETFs offer a wide variety of investment focus.

ETFs are commonly considered a more alternative investment than mutual funds, as they typically offer more investment opportunities further removed from traditional equity investments. For example, there are a large number of ETFs focused on investment assets such as bonds and other financial instruments, commodities and foreign exchange.

  1. Why don't mutual funds trade like stocks?

    Learn how mutual funds differ from exchange-traded funds (ETFs) in how they are traded. Also, learn what fees are involved ... Read Answer >>
  2. In what ways are ETFs more tax efficient than mutual funds?

    Compare mutual funds and exchange-traded funds to find out which one offers the most advantageous tax position for investors ... Read Answer >>
  3. Why is it that when investors realize returns on a mutual fund, its price tends to ...

    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
Related Articles
  1. Financial Advisor

    5 Secrets You Didn’t Know About Mutual Funds

    Learn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
  2. Investing

    Are Mutual Funds A Relic?

    We list some options other than mutual funds for your retirement plan.
  3. Investing

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
  4. Investing

    5 Reasons to Choose Mutual Funds over ETFs

    Discover five reasons to choose mutual funds over ETFs, such as the wide variety of funds available, the higher service quality and the lack of commission fees.
  5. Investing

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  6. Investing

    When Is the Right Time to Change From Mutual Funds to ETFs

    Find out how to determine when it's the right time for you to switch from mutual funds to ETFs, including the benefits of ETFs and who they are best for.
  7. Investing

    The Benefits of Picking Mutual Funds Over Individual Stocks

    Learn about the advantages of investing in mutual funds rather than individual stocks, including the benefits of affordability, oversight and diversification.
  8. Investing

    Better for Young Investors: ETFs or Mutual Funds?

    Choosing ETFs versus mutual funds can be a tough decision for young investors. Here are some things to consider for each.
  9. Investing

    For More And More Investors, ETFs Are A Godsend

    Average and cautious investors can experience lower risk with ETFs - a safer alternative to swaps and derivatives.
  1. Exchange-Traded Mutual Funds

    Investopedia explains the definition of exchange-traded mutual ...
  2. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  3. Index ETF

    Exchange-traded funds that follow a specific benchmark index ...
  4. NAV Return

    The change in the net asset value of an exchange-traded fund ...
  5. Mutual Fund Yield

    Dividend payments divided by the value of a mutual fund’s shares. ...
  6. Mutual Fund Custodian

    A trust company, bank or similar financial institution responsible ...
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  3. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  4. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  5. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  6. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
Trading Center