Question

Write a paper on how hedge funds are different from mutual funds?

Answer 1

• Mutual Funds is a pool of funds meant for general public who wish to invest in capital market but do not have the detailed knowledge. Therefore, they invest in mutual funds where the Asset managers manage their portfolio by investing in the market. On the other side, hedge funds are meant for sophisticated investors who are also called high networth individuals (HNIs) having the risk appetite and the huge sums of money to invest into the market.
• Mutual Funds are invested in capital market is stocks, bonds and treasuries or the investements which are low to moderately risky. Hedge Funds majorly invest in complex financial intruments such as structured derivatives products- futures, options, swaps.

• Mutual Funds are less risky than the hedge funds.
• Mutual funds are highly regulated by the government regulations, howver, hedge funds are not regulated by any authority.
• In terms of redemption or liquidity, mutual funds can easily be converted into cash even on a daily basis. However, hedge funds are difficult to liquidate in short term.
• For example- Bitcoin, Options or Futures could be the form of hedge fund investment, whereas, investing in a stock or security could be the form of mutual fund.
• Mutual funds do not take the profit of the shareholders. they charge only a basic fee for managing the portfolio. However, hedge fund charge a huge amount of money as fees and earn from the profits as well.
• Hedge Funds tends to have aggresive investment strategies compared to mutual funds