A simple explanation of "hedge funds"?
Answers:
Hedge funds are investment funds. Like mutual funds, they pool the money of many investors and attempt to earn a return on that investment.
Unlike mutual funds, they are not regulated and not required to publish results or other information commonly used to evaluate investment philosophies and effectiveness.
The are allowed to operate in this unregulated manner because they only accept investments from wealthy clients who are considered 'sophisticated investors'. Large minimum investments generally keep small investors out.
Withdrawal of funds by investors in hedge funds is generally limited to a few days a year.
Hedge funds tend to charge very large fees; over 10% compared to most mutual funds that charge 1%. Many hedge fund managers are paid a percentage of the funds gains, something that is prohibit ted for mutual fund managers.
Hedge funds will often make large investments on one thing, and not hold a diversified portfolio. This can result in large gains or large losses.
http://en.wikipedia.org/wiki/hedge_fund.
Now a days all Mutual funds are termed as hedge funds because of their diversified nature. In the begining of hedge funds there were funds that diversified as well as hedged using options. Such funds were actually called hedge funds then. Now all.
Fund - a company (investment/asset manager) collects money from individuals or insitutional investors (like pension funds) to create a fund. this is the raising money side
second side is asset management side i..e they invest the money raised into various assets (can be anything eg equity, debt, derivatives etc) to generate high returns.
Mutual fund - fund that raises money from small investors like u and me, and invest in highly rated companies. So the return u'll get is low but your investment is secure (low risk low return)
Hedge fund - in contrast to mutual funds, hedge funds raises money from wealthy individuals (normally minimum investment of 100,000). They invest in all kind of very complex securities and use risky strategies. So high risk, high return. But they also use various hegding techiques to mitigate risk. As the investors are "qualifying investors" (wealthy individuals) the regulators don't impose much regulations on hedge fund.
Mutual fund are heavily regulated (restrictions on the kind of asset they can invest in and the investment strategy they adopt) - to save the poor retail investors.
A hedge fund is a pooled investment vehicle that is available strictly to accredited investors, structured as a limited partnership of an off-shore corporation and collects performance fees.
A hedge fund is an investment fund that is not a "traditional" fund (i.e. mutual fund, closed-end fund, whole-life insurance, trust fund). The term "hedge" comes from the original strategy of hedging away types of risk. For example, one could buy a good airline stock and short a bad airline stock, hedging away industry risk to gain the price movement differential between the two. However, "hedge fund" has a much broader term now as hedge funds do not necessarily use hedges.
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