What is difference between Mutual funds and Hedge funds?

Short Answer

In a way, there are a lot of similarities between Mutual Funds and Hedge Funds. In the both types of investments, a group of investors pool their money and invest in different type of securities. The main misconception about the funds is that people think that they are similar and the terms are interchangeable. In reality, they are not same and there is a very thin line between them.

Detailed Answer

The main difference between these two funds is that in a Hedge fund the number of investors is very less while the Mutual fund has a large number of investors.

Mutual Funds

In simple words, a mutual fund can be considered an investment vehicle in which a group of people pools the money and a fund manager invests those funds in different securities. The manager often charges a fee for the administration of the fund, which depends on the size of the investment.

Hedge funds

A hedge fund is an investment portfolio which is managed under investment partnership. These types of funds are a private portfolio of investments which uses highly advanced strategies for the investment and risk management.

The key differences between Mutual and Hedge funds

  • A hedge fund is a privately owned portfolio investment in which only a few investors are allowed. However, a mutual fund is a professionally managed investment plan where a number of investors pool their money to buy securities.
  • The main aim of hedge funds is assured returns while mutual funds aim at relative returns.
  • The owner of mutual funds can be thousands in number while in hedge funds the number of investors is very limited.
  • The hedge funds are managed with highly advanced strategies and risk management techniques to ensure good returns which are not in the case of mutual funds.
  • The hedge funds have high profile investors while the mutual funds include retail investors who invest relatively small amounts.
  • Hedge funds have very limited regulations from the government side, however, in the case of mutual funds, the Securities Exchange Board of India (SEBI) issued guidelines from time to time.
  • In the hedge funds, the management fees depend on the returns on the investment while in the case of mutual funds the management fees depend on the assets that are being managed.
  • In mutual funds, the asset manager does not hold any substantial interest while in hedge funds the person or company that manages the funds also owns a large part of the investment.
  • When it comes to mutual funds, the reports about the investments and returns have to be published yearly. Also, the disclosure of the investments has to be made public every six months. While in hedge funds the information about the investments and returns is released to the investors only.

Conclusion

The investments in both funds depend basically on the recourses you own. If you have a lot of funds you can invest in hedge funds. In case you have limited resources, you can choose to invest in one or two mutual funds depending on what kind of returns you are looking for.

Tagged With: mutual fundshedge fundsmutual funds vs hedge fundsinvestment
Categories: Mutual Funds
Ask your query and our expert community would be happy to help
Discussion (0)
Related FAQs

What is difference - Mutual Funds vs Index funds?

The differences between index funds and mutual funds are vast. Learn what is mutual fund and index fund and know what differentiates the two investment options.

Which is better FD vs. Mutual Fund vs. Real Estate Investment?

FD vs Mutual Fund vs Real Estate Investment has its advantages in terms of how much you invest and your investing period. Longer the period, higher the returns.

What is difference between Fixed Deposit vs Mutual Fund? Meaning

Fixed Deposit (FD) are saving tools offered by banks to deposit lump sum amount for a fixed period of time on a higher interest rate than saving accounts. Mutual funds are investment products which pool money from numerous small investors to create a fund.

What is the difference Liquid funds vs. Savings accounts?

Based on return liquid funds outperform savings account by anything between, 2-4 % points which is 50-100 % higher return than the savings account. So, purely on the basis of returns investing in liquid funds seems a better option.

How to invest in mutual funds with or without demat account?

Investors looking to invest in mutual funds without a Demat account can invest through financial institutions, independent financial advisors, AMC, and online portals.

Can NRIs invest in mutual funds in India?

Yes, any NRI can invest in mutual funds in India, if they follow some certain conditions under Foreign Exchange Management Act or FEMA Act 1999.

Are market highs good to invest in Equity mutual funds?

Understanding the relative position of the market, the absolute values do not matter much. What matters is what is the earnings multiple, currently the market is trading at, popularly captured by a metric called P/E ( Price to earnings).

Should you take a Loan to Invest in Mutual Funds?

Borrowing money for investing in mutual funds never really pays off. Its not the right thing to do given that mutual funds returns would not provide sufficient returns in the time which your loans have to be paid back.

How are ETFs different from Mutual Funds?

ETFs (Exchange Traded Funds) and Mutual Funds are similar investment vehicles that provide the investors various features. Both have their benefits and shortcomings. ETFs are a good option for passive investors who want to invest in a particular Index or Sector without much rebalancing. On the other hand, Mutual Funds are a better option for active investors who are more active with their investments. One can switch between funds according to their current strategies.

Is Groww App Safe for Mutual fund and Stock Investing?

Yes, Groww app is completely safe for mutual fund, stock investing and trading. As a popular mutual fund investment plaftorm, Groww established itself quite well in the past few years. Now, it has also enetered the stock broking space so it's really good to see new entrants amid existing top discount brokers in India.