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.
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.
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.
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 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.