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  • 21 September, 2022

  • 5 Min Read

Hedge Fund

Hedge Fund

  • A hedge fund is a limited partnership of private investors whose capital is managed by experienced fund managers. These managers employ a variety of tactics, such as borrowing money or trading in non-traditional assets, to generate returns on investments that are higher than average.
  • Investment in hedge funds is frequently viewed as a dangerous alternative investment option since it typically has a high minimum investment requirement or net worth requirement and frequently targets wealthy clientele.

Regulatory specifications

There is no requirement for hedge funds in India except register with the Securities and Exchange Board of India.

Several types of hedge funds in the market:

  • Domestic hedge funds: Only investors who must pay taxes to the nation of origin may invest in domestic hedge funds.
  • Hedge funds that operate outside of their home country—ideally in one with low taxes—are known as offshore funds.
  • Mutual funds that invest in other hedge mutual funds rather than the specific underlying equities are known as "funds of funds."

Hedge Funds v/s Mutual Funds

  • Hedge funds are distinct from mutual funds, and they are not subject to the Securities and Exchange Commission's (SEC) the same level of tight regulation.
  • Mutual funds, which are accessible to the general public and average investor, are a practical and cost-effective solution to create a diversified portfolio of stocks, bonds, or short-term investments.
  • Only accredited investors—those with an annual income above $200,000 or a net worth surpassing $1 million, minus their primary residence—can contribute money to hedge funds.
  • While mutual funds utilize stocks or bonds as their instruments for long-term investment plans, hedge funds can invest in real estate, stocks, derivatives, and currencies.

Source: The Financial Express

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