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Difference Between Hedge Funds and Mutual Funds

Difference Between Hedge Funds and Mutual Funds

Difference Between Hedge Funds and Mutual Funds.Hedge funds are like mutual funds in two respects:

(i) they are pooled investment vehicles (i.e. several investors entrust their money to a manager) and
(ii) they invest in publicly traded securities.
But there are important differences between a hedge fund and a mutual fund.

Difference Between Hedge Funds and Mutual Funds

1. Investors give hedge funds the freedom to pursue absolute return strategies. While Mutual Funds Seek Relative Returns
2. Unlike mutual funds, which are “long-only” (make only buy-sell decisions), a hedge fund engages in more aggressive strategies and positions ,such as short selling, trading in derivative instruments like options and using leverage (borrowing) Leveraging and other higher-risk investment strategies are a hallmark of hedge fund management.
3. Hedge funds are more popular in bear markets. In a bull market, hedge funds may not perform as well as mutual funds, but in a bear market – taken as a group or asset class – they should do better than mutual funds because they hold short positions and hedges.

Difference Between Hedge Funds and Mutual Funds

4. Hedge funds are “liberated” with respect to registration, investment positions, liquidity and fee structure. Hedge funds in general are not registered with the authorities like in USA with SEC. Mutual funds are heavily regulated by the SEC(Securities & Exchange Commission).
5. Furthermore, hedge funds are prohibited from soliciting or advertising to a general audience. Hedge funds aren’t supposed to publicly market themselves. Mutual funds advertise heavily.
6. In hedge funds, liquidity is a key concern for investors. Liquidity provisions vary, but invested funds may be difficult to withdraw “at will”.

Difference Between Hedge Funds and Mutual Funds

7. Hedge funds are more expensive than Mutual Funds.
8. Hedge funds are private investment pools that apply aggressive investment strategies and leverage .Mutual funds are public investment companies that typically invest in stocks, bonds and cash.
9. Typically hedge funds are used by wealthy individuals. The US government only allows high net worth individuals and institutional investors to invest in them. However anyone can invest in mutual funds.
10. Hedge Funds are not required to make periodic reports under the regulations. Mutual funds report their prices daily.

Difference Between Hedge Funds and Mutual Funds

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Difference Between Hedge Funds and Mutual Funds

Difference Between Hedge Funds and Mutual Funds

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