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Understanding Hedge Funds Vs Mutual Funds

February 27, 2012 | Comments: 0 | Views: 119

Hedge Funds Vs Mutual Funds

Many people are unaware of the difference between hedge funds vs mutual funds. For those already in the business of investing, this may be obvious, but for beginners, the different types of funds out there can get pretty confusing. Knowing the details is important when it comes to investing, as clarity is required in order for you to meet your investment goals are quickly as possible. The following article will explain the different between hedge funds vs mutual funds.

Mutual Fund Defining Characteristics

These kinds of funds have their performance marked against a benchmark. This benchmark is supposed to be passed as the years go by and the performance of the fund increases. Similar to a hedge fund, this features a pooled investment from a group of investors. Having more people involved lessens the chance of losses during bad years. Mutual funds are typically limited to money market accounts, stocks, and bonds, although it is possible for securities with returns to be used as well. Their daily price is found by taking into account the number of investors involved with the fund, as well as the rate of a their shares. This changes as one grows more of less popular.

The Concept Of A Hedge Fund

With hedge funds, you may hear that they always invest in securities that are traded publicly. This is not true. These funds often invest in things that do not correlate very highly to the general market, such as art, PIPE deals, real estate, futures, website domain names, stocks, bonds, options, Foreign Exchange, and even wind power farms. In their portfolios, they set themselves up for growth, and typically avoid comparisons against Standard & Poors 500 or the Russell 3000. The term "hedge" means that a private investment fund invests its capital in a wide range of markets through a variety of strategies. It's not a requirement for a hedge fund to actually "hedge" things, and not all of the funds are as risky as people would like to believe.

The Difference In Accessibility

Anyone can invest in a mutual fund. Not everyone can invest in a hedge fund. You must be found to be an accredited investor in order to become part of one. For Americans, this means you must meet high net worth standards. The United States is actually one of the very few places where it's required that you be an accredited investor before investing. Globally, there are between 12,000 and 14,000 hedge funds competing with each other out on the market, compared to an estimated 70,000 mutual funds.

Connor Swinney is the owner of the What Are Mutual Funds website. He created the website to be used as a resource for people who are looking for more information on Understanding Money Market Mutual Funds or that would like to know how they can create a successful investment strategy.

Source: EzineArticles
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Hedge Funds Vs Mutual Funds

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