The Differences between Mutual Funds and Hedge Funds

If you take a look within the various online forums debating the problem of hedge funds you will find out the differences between mutual funds and hedge funds. Throughout this article we will describe the differences between these two funds for a better understanding to the ones interested in investing in either of these two.

1. Mutual funds – reveal their performance in protecting their investors against the losses that come with bad years.

* There are some securities that have their returns irrespective of the overall market, although in general these funds are limited to bonds, stocks and money market accounts.

* One other difference is given by the fact that anyone can invest in these types of funds.

* The price of their vehicle is calculated on daily basis relying on the investors’ number and the cost for a mutual fund or market rate. It seems that the most popular has become the mutual fund of fund products recording an increased preference in the last five years. The average cost of a mutual fund has reached .75% annually.

2. Hedge funds – are those funds which do not take in securities that are traded publicly. These are often investments done in arts, real estates, along with other investment vehicles. These ones are not connected to the general market.

* You will find approx 12,000 up to 14,000 hedge funds being in competition with each other. As revealed by media means, hedge funds are considered a highly risky investing initiative that includes dangerous levels of leverage.

* You will find hedge funds investing in website domain names, arts, bonds, stocks, futures, options, forex, or wind power farms.

* Another difference is in that hedge funds will handle the portfolios in such a manner that they will aim towards huge growth targets. As a result they won’t compare against any of the benchmark based on stock exchange such as Russell 5000.

* The other thing that makes hedge fund differ from mutual fund is that one has to be an accredited investor in order to be allowed to invest in this fund or any of the fund products. One will meet as such several hedge fund of funds – being investment vehicles used in investing in other hedge funds.

* They require a large amount to be invested as there are investors known to invest $2M even if the fund were regarded as a high risk investment. High risk is the feature that accompanies this type of investment but being known to come as well with a huge ROI. This is simply seen as the saying goes: “no pain, no gain”.