Hedge Fund Vs Mutual Fund

Is there Enough Investment Potential in Hedge Funds? Hedge Fund Vs Mutual Fund

Hedge Fund Vs Mutual Fund Before we discuss the investment potential of a hedge fund, everyone needs to have a clear idea of what they are. A hedge fund is an investment partnership between a fund manager and several investors, quite similar to a mutual fund. Unlike mutual funds, though, hedge funds invest in almost all types of financial products with aggressive and variable market strategies, ensuring high returns.

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A hedge fund manager is the general partner, while all other investors are the limited partners. It is a mutual pool, of course, which means that aside from the investors themselves, the general partner/fund manager also invests heavily into the hedge pool. Now that we know what hedge funds are. Let’s take a look at what, if anything, makes hedge funds worth your time and money.

Flexibility

One of the defining qualities of a hedge fund is that, unlike other investment funds. They are not limited to one or two specific investment markets only. The wider investment latitude allows their pooled funds to be invested and reinvested in any potentially lucrative market, at any given time. Such markets include real estate, currency, cryptocurrency, derivatives, stocks, bonds, alternative investments, and much more.

Higher Returns

The flexibility we just discussed creates an opportunity for huge returns on each investment. Provided that the funds are being handled by an expert hedge fund manager with significant experience. Market knowledge, and access to the latest smart investment tools. For example, a well-managed hedge fund is capable of generating profits. Regardless of whether the market conditions are favorable for equity and bond investments.

Lowered Risk

Hedge fund investments are by default, comparatively secured investments. While several micro factors make hedge funds more secure than mutual funds. The most prominent factors can be summarized as follows:

  • Flexibility allows for creating a more balanced portfolio by investing in several counterposed markets at once.
  • Even when market conditions deteriorate in one or more sectors in which the fund has invested, the counterposed assets shelter the portfolio from suffering losses.

More Scope for Strategizing Investments

Hedge fund managers enjoy the independence they need to invest in a wider array of markets to decrease impacts of market volatility. Using appropriately aggressive strategies that ensure returns under almost any market condition. Some of the popular strategies used by hedge fund managers are as follows:

  • Long/Short Equity
  • Volatility Arbitrage
  • Convertible Bond Arbitrage
  • Merger Arbitrage
  • Equity Market Neutral
  • Global Macro

Despite all the several advantages of investing in hedge funds. Furthermore, keep in mind that all market investments are subject to risks. While it is true that hedge funds have a very low chance of failing. The losses are usually big when that does happen on rare occasions.

Lastly, a hedge fund is a long-term investment. Moreover, so the lock-in period for any investments made will be longer than those of standard mutual funds.

Hedge Fund Vs Mutual Fund