| Good question. But to answer it properly it is first | | | | invest in only government bonds while in case of |
| necessary to understand the difference between | | | | other they use private loans to private |
| hedge funds (HF) and mutual funds (MF). But of | | | | corporations to accumulate profits for its |
| these investment options have similarities in that | | | | investors. |
| they both pool the investor's money across a | | | | • While mutual funds gauge their performance |
| wide selections of investment opportunities. Hedge | | | | according to one of the major stock indexes |
| funds however usually limit their investors to large | | | | (Dow Jones, S&P 500 or NASDAQ), but in |
| institutional types or wealthy investors and they | | | | case of later they shoot for absolute growth |
| are much riskier and are not covered by the | | | | targets without considering the markets. |
| extensive regulation that inhibits other type of | | | | • Both funds claim to lower risk by spreading |
| funds. | | | | out investments across a broad range of |
| While both of these funds hold stocks, mutual | | | | securities and investments, since hedge have no |
| funds stick to investing in publicly traded stocks, | | | | real regulation they are able to invest in very high |
| but in case of hedge they have no such limitations | | | | risk, high return investments. |
| and can usually buy into any type of investment | | | | Because of the general freedom that a hedge |
| that the fund manager thinks will generate a | | | | manager has over the investments that he can |
| payoff for the investors. Also, because hedge | | | | make he is free to invest in MFs. Because MFs |
| funds often invest in private corporations, financial | | | | have a lower return rate however, and |
| details are not generally available to the general | | | | expectations of the investors in the HFs are |
| public. | | | | much higher than them, so the fund managers will |
| Other similarities and differences include the | | | | generally not invest in them. If a certain MF |
| following: | | | | shows a high, steady return, however, some fund |
| • Both funds usually invest in bonds at a | | | | managers do sometime take the plunge, at least |
| certain level, since bonds are safer, even though | | | | until the MF's rise levels out, and will dump some |
| they have a lower return. Like with stocks, MFs | | | | money into the mutual fund to reap the profits. |