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Difference Between Mutual Funds and Hedge Funds

mutual_fund_bookMutual Funds vs Hedge Funds

From a practical and legal point of view, there are differences between mutual and hedge funds. A mutual fund is a collective investment scheme, consisting of shares in a variety of bonds, stocks, securities and other short-term money market investments. This type of fund usually has a fund manager. The net profits and losses from the investments are paid to the investors on an annual basis. A hedge fund is an investment fund that is offered to partial investors, and it allows for various trading activities and other investments. The investment manager of the hedge fund is entitled to a performance fee. Investments that are applicable to a hedge fund include, debt, shares and commodities. Therefore, the two funds manage different investment schemes, and both focus on futures, stocks, bonds and other types of investment products.

Mutual funds are known for their high performance, and lower risk factor during unproductive periods. They usually involve securities that are not conventionally correlated with the market, and are generally partial to bonds, money market accounts and stocks. Mutual funds analyze the market rates, number of investors, and funds that become highly profitable and popular amongst investors. The average return rate of a mutual fund investment, is seventy-five percent per year. An advantage of mutual funds, is that anyone is capable of these types of investments.

Hedge funds, unlike mutual funds, are not invested in publicly traded securities. Their involvement lies in real estate, futures, art, PIPE deals, and other types of investments that are not linked to the usual market. These funds can also be invested in stocks, website domain names, bonds, options, wind power frames and foreign exchange. Currently, there are fourteen thousand competitive hedge funds available. Hedge funds have the potential to become highly profitable.

In regards to the origin of these funds, mutual funds were traced in the Netherlands, in the early 1800’s. Mutual funds, as we know them today, began in 1924, with the Massachusetts Investors. From then on, many more types of mutual funds came into existence. Hedge funds were started by Alfred Winslow Jones, in 1949. He created the hedge fund by decreasing other stocks, and hedging his positions. About four years later, the hedge fund became a limited partnership, and from then on, had a performance fee of twenty percent of the total yearly profits.

Summary:

1.A mutual fund is a collective investment system that includes shares from bonds, stocks, securities, and other short-term money market investments.

2.A hedge fund is an investment fund that is available to partial investors, and it allows for various trading activities and other investments.

3.Everybody can invest in mutual funds.

4.Hedge funds use the whole market, in order to maximize the investment potential.


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