Hedge funds versus mutual funds

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Hedge funds versus mutual funds

Abstract

The purpose of this study is to provide the difference between hedge funds and mutual funds. The study aim of the study would be to determine the difference between mutual funds and hedge funds and the objectives of the study would be based on determining the differences between hedge funds and mutual funds in the basis of incentives, strategies, investor relations and risks for both hedge funds and mutual funds. The study would provide a great contribution in understanding the characteristics as well as benefits and risks of mutual and hedge funds.

Past Research

History of funds

There are many definitions of hedge fund, and none of it is universally accepted. It is very difficult to describe hedge fund when we are referring to a number of investment vehicles with heterogeneous and diverse characteristics. The definition of hedge fund of a private company is free to operate in a variety of markets and investments and strategies used with variable exposure to long and short positions and degrees of leverage. The highlight of the definitions can be made from this type of investment is first, that a hedge fund is an investment vehicle for a collective investment scheme although it may take different legal forms company, investment fund or other. Furthermore, short positions can also be taken through derivatives, such as futures selling a particular title. The problem faced by the hedge fund, is that not all assets are traded futures or other derivatives with which to take short positions, so they often need the loan of securities (Asness, Robert, John, 2001). The first alternative management fund, the Jones hedge fund, was created in 1949 by a doctorate in sociology and financial journalist Alfred Winslow Jones. The Jones Hedge Fund gave its name to what is now known as a hedge fund. The first hedge fund was taking long and short positions in stocks and bonds, to increase yields and reduce the net exposure to the market. The fund assets bought (long position) that could revalue, while covering against market falls by short selling assets (short position) that provided could fall. The fund used leverage. Jones's model was based on the premise that profitability depends more on the selection of values of market direction. He believed that a rise in the market for good stock selection to identify assets would rise more than the market and those who would do less and, therefore, likely to be sold short. However, it was not until well into the nineties when hedge funds were really taking off. In this decade, institutional investors, for example, insurance companies, pension funds or foundations, began to invest in these funds, as in the previous decade these products were used almost exclusively for the very wealthy. The lack of regulation had strayed so far from institutional investors such investments (Agarwal, 2009).

Hedge fund and mutual funds

Hedge fund is considered as a financial term which is applied to a diverse actively managed, private and non-traditional investment ...