What are Hedge Funds?
Hedge funds are a type of private investment portfolio that use advanced risk management and investment techniques to produce profitable returns by investing in a variety of assets. Only a small number of authorized investors are permitted in the fund, and they combine their funds with the fund management to invest in a variety of assets. For managing funds, the fund manager gets charged a fee that is based on the profits earned by the fund’s assets.
Key Features of Hedge Funds:
- Wide Investment Range: Hedge funds can invest in a variety of assets, including stocks, bonds, commodities, derivatives, and real estate.
- Active Management: Hedge funds are actively managed, employing complex strategies to achieve high returns.
- High Minimum Investments: Hedge funds typically require significant minimum investments, often accessible only to accredited investors.
- Performance Fees: Hedge funds charge performance-based fees, often including a management fee and a percentage of profits.
- Leverage Use: Hedge funds frequently use leverage to amplify returns, which can increase both potential gains and risks.
Difference between Hedge Funds and Mutual Funds
Hedge Funds and Mutual Funds are two instruments through which Investment can be made in various instruments available in the market. Hedge Funds are basically private investment portfolios specifically used by the richer class whereas Mutual Funds are more associated with regular investors having one common objective.
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