If you’re new to the financial market and looking to invest, two options can stand out to you, hedge and mutual funds. The two financial tools have quite similar characteristics. However, the two are also very different regarding various aspects. Both hedge and mutual funds offer a portfolio of different funds pooled together for investors. Money from a small group of investors is collectively invested in monetary tools like stocks and derivatives as decided by a fund manager. Financial advisory services can also offer their help since these funds can be handled by one or more managers. Various strategies are incorporated while the collective funds are invested in both mutual and hedge funds. Apart from some similarities, the two funds are also drastically different. Some such variations between these two include:
Hedge fund companies focus only on high net worth individuals (HNIs) and sophisticated investors as their clients. Due to this, the amount of investment you need to join a hedge fund is more. Only an accredited investor can be a part of hedge funds. On the other hand, mutual funds are available for anyone in the society eligible to make investment choices. You do not need a huge amount to start investing in mutual funds, and hence you’ll find that various Indian companies offer mutual fund options.
In hedge funds, an aggressive approach is taken while investing, whereas, for mutual funds, a simpler and less risky strategy is put into work. This makes mutual funds suitable for those who do not have an appetite for high-risk investments. HNIs usually opt for a hedge fund so they can put their money into high-risk, high-return projects. Hedge funds usually target to make a profit, regardless of the market’s position but mutual funds offer milder but more stable investment options which are less risky but can get you a profit nonetheless.
You might feel the need to opt for financial advisory assistance before you choose whether to invest in a hedge or mutual fund. A major factor for this confusion could be the fact that mutual funds are stringently governed and have to follow the rules set by the financial regulatory board of the country. On the other hand, hedge funds are not registered or regulated under the same commanding board. Hence, hedge fund managers have more liberty to handle their funds without the intrusion of a governing body.
Due to their nature, hedge funds offer much less liquidity to their investors. There could be a lock-in period of a year or more, depending on the fund. However, the flexibility that these funds offer makes up for the terms you need to follow. The situation differs with respect to mutual funds. Since it’s the general public who invest in mutual funds, it’s not as illiquid as its counterpart. Mutual funds offer more options to their investors. You can get in touch with some of the best financial advisor firms to completely understand the terms and conditions of both hedge and mutual funds before investing in either of them.
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