Hedge funds vs mutual funds
Hedge funds vs mutual funds
The hedge funds and the mutual funds can be considered as two animals of different species. There is nothing in common between the two except for the fact that the two are made for investments. This is where the similarities between the two end. The mutual funds are SEC registered investment vehicles. They have a set of rules to which the mutual funds much respond to. The hedge funds are mostly for private investments. These are non secure and non regulated. Also there are no such rules that govern the hedge funds. As such the return from the hedge funds is quite higher than the mutual funds. The mutual funds have small investments that are required to start on. The hedge funds have however large minimum investments and also a set of conditions that need to be fulfilled. These typically include a minimum yearly income by the investor and also a minimum net market value of the investor. The mutual funds are not limited to any number of investors. The hedge funds are however limited to a limited number of investors or partners who can invest in the hedge funds. The mutual funds are easily available to the general public. For an investor to be able to invest in hedge funds he or she must first be an accredited investor. He should have all the requirements met. The mutual funds are subjected to daily liquidity and the redemption is also done daily. The hedge funds however have liquidity period that can vary from monthly to annually. The mutual funds generally make use of less leverage but the hedge funds are known to take in more leverage to maximize the returns. During the down market times some of the mutual funds defensively hold while the others fare badly during the down market times. The hedge funds have unconventional strategies that they use to fight against the down market but the essential return during this period would be proportional to the amount of money that is invested in the hedge funds. The fee limits in mutual funds may be charged as per the regulations of the SEC. The fee limits of hedge funds however are non existent. This means that the hedge funds can have a fees of 20% associated with them. Also instead of a percentage you may be charge a part of your profits. This is negotiable with the company. Proceeding with hedge funds is advised to be done with extreme caution. This is especially if you are new to the Market. Also it is advisable to stick around with the hedge funds that have been in the market for a while
