Hedge funds are like mutual funds in some ways. Investment professionals in a hedge fund pool in money from investors to be managed - exactly like the mutual funds do. And, subject to some minor restrictions, investors in hedge funds can withdraw their money as they can in a mutual fund. Nothing else is similar.

2. Hedge Fund Vs
Mutual Fund
Hedge funds are like mutual funds in some ways. Investment professionals in a
hedge fund pool in money from investors to be managed - exactly like the mutual
funds do. And, subject to some minor restrictions, investors in hedge funds can
withdraw their money as they can in a mutual fund. Nothing else is similar. Let me
explain the differences.

3. Difference 1
Hedge Funds Mutual Funds
Focus on absolute Focus on relative returns.
Returns should be higher
returns
than benchmark

4. Difference 2
Hedge Funds Mutual Funds
Can invest in any asset class - Work within a risk controlled and
stocks, bonds, commodities, compliance framework set up by
real estate, private partnerships, the regulator. Hence very risky
- or exotic debt products like asset classes are prohibited for
packaged sub-prime mortgages. investment

5. Difference 3
Hedge Funds Mutual Funds
They can borrow to bet They can borrow – but within
bigger and enhance SEBI guidelines
returns.

6. Difference 4
Hedge Funds Mutual Funds
They can run highly The objective is to
concentrated portfolios. protect investors’
investment and hence
diversification is the key
principle.

7. Difference 5
Hedge Funds Mutual Funds
Meant for those who are already Meant for people at large
rich. Hedge funds are open only to providing them with an option
'accredited investors' defined as of building wealth through
those with net worth of more than equity and debt investments.
$1.5 million, or income in excess Mutual Funds allow even small
of $200,000 in each of the past investors to participate.
two years. The good ones
demand $1 million or more of
investment.

8. Difference 6
Hedge Funds Mutual Funds
Work on 2/20 basis which They carge 1.25% on the first
means they charge 2% a year 100 crores of the AUM
by way of management fees managed. Annual expenses
and 20% of the net profit. They can go upto 2.25% to 2.50%.
do not share in losses.

9. Difference 7
Hedge Funds Mutual Funds
Hedge Funds are virtually Mutual funds are heavily
unregulated.
regulated because investor
safety is the most
important requirement

10. Difference 8
Hedge Funds Mutual Funds
They are sold as
They cannot market
products to enhance
themselves publicly.
wealth.