What Are The Main Differences between Hedge Funds & Mutual Funds?

There are a number of similarities and differences between the two.

The Similarities

The primary similarity between hedge funds and mutual funds is that both are managed portfolios. In short, this means that a manager or group of managers selects investments and adds them to a single portfolio.

With both hedge funds and mutual funds, portions of the fund are sold to investors who are then in position to take advantage of any gains while also dealing with losses associated with the holdings.

With both hedge funds and mutual funds, the primary benefit is that investors are able to diversify their investments while receiving professional management from those who are known to provide above average performance.

The Differences

Hedge funds are managed in a more aggressive manner than mutual funds. From the ability to short sell stocks to taking positions in options, hedge fund managers are aggressive as they attempt to generate the best gains possible for clients.  With an aggressive stance, hedge funds are in better position to earn money even when the market is dropping.

On the other side of things, mutual funds are not permitted to take on such risk, making this the safer of the two options. Safer also means less chance for a really big return.

Another difference worth noting is availability. Mutual funds are simple to purchase with a minimal investment. This is something an “average” investor can easily get involved with.

Hedge funds, however, are only made available to individuals with a high net worth.

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