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Mutual Fund vs Hedge Fund

Difference between Mutual Fund and Hedge Fund

Basis of DifferenceMutual Fund (MF) Hedge Fund (HF)
ObjectiveTo earn relatively higher returns than
benchmark
Vs
Focus remains on earning absolute
returns
MeaningA 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 patternInvests 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.
RegulatorSEBI is the main regulator
Vs
Virtually unregulated
DiversificationInvests in diversified assets
Vs
Invests in concentrated assets
ManagementLess aggressively managed as compared to
the hedge fund
Vs
Aggressivly managed
Who can investSmall investors who want to create long
term wealth and achieve their short term
or long term objectives
Vs
Persons who are already rich
Investor categoryRetail investors
Vs
Pension fund, endowment fund, high net
worth individuals
Fee structureBased on the percentage of assets
managed
Vs
Performance based fee
BorrowCan 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
MarketingIt can market itself for attracting
investments
Vs
It can not market itself for attracting
investments
TransparencyPortfolio and performance are disclosed
in general by the fund house, available
to all
Vs
Information provided to investors only
RiskLess risky than Hedge Fund
Vs
Very risky