Mutual Fund vs Hedge Fund
Difference between Mutual Fund and Hedge Fund
Basis of Difference | Mutual Fund (MF) | Hedge Fund (HF) | |
---|---|---|---|
Objective | To earn relatively higher returns than benchmark | Vs | Focus remains on earning absolute returns |
Meaning | A trust which pools the savings of several investors together and invest this collected fund in diversified basket of securities at low cost | Vs | Portfolio of investments which pool the money from only a few qualified wealthy investors and buys risky assets |
Investment pattern | Invests under risk controlled asset classes and work under rules and guidelines set up by the regulator | Vs | Can invest in any asset class like shares, debentures, bonds, commodities, real estate, private partnerships, sub-prime mortgages etc. |
Regulator | SEBI is the main regulator | Vs | Virtually unregulated |
Diversification | Invests in diversified assets | Vs | Invests in concentrated assets |
Management | Less aggressively managed as compared to the hedge fund | Vs | Aggressivly managed |
Who can invest | Small investors who want to create long term wealth and achieve their short term or long term objectives | Vs | Persons who are already rich |
Investor category | Retail investors | Vs | Pension fund, endowment fund, high net worth individuals |
Fee structure | Based on the percentage of assets managed | Vs | Performance based fee |
Borrow | Can borrow within SEBI guidelines i.e. only for meeting out huge redemption pressure and for specific period of time | Vs | Can borrow for investing to bet bigger and increase the returns |
Marketing | It can market itself for attracting investments | Vs | It can not market itself for attracting investments |
Transparency | Portfolio and performance are disclosed in general by the fund house, available to all | Vs | Information provided to investors only |
Risk | Less risky than Hedge Fund | Vs | Very risky |