Easy Explanation of Hedge Funds And Its Type And Strategies
Today we will know..
What is a hedge fund?
How does it work?
What are its risks and benefits?
And can it be invested in? And if it can be invested then how?
What is a hedge fund?
The purpose of a hedge fund is to protect Uncertainty, to protect the portfolio when the market is down.
Hedge fund is similar to mutual fund. In this, the company takes money from different people and invests or trades in different sectors of the market and charges some fees in return.
Hedge fund fees run on a 2:20 ratio
In which 2% is charged on investment and 20% is charged on profit, when the fund brings more returns than a certain limit.
What is the difference between hedge fund and mutual fund?
There are 2 biggest differences between a hedge fund and a mutual fund.
First the hedge fund is not SEBI registered
Second, small funds cannot be invested in hedge funds. Because hedge fund mostly works on long term profit for which hedge fund manager needs a huge amount of fund
Different hedge funds work on different sectors, for example, Bridgewater and Soros are considered among the world's largest hedge funds.
How does hedge fund work?
There are 2 partners in a hedge fund. The first is the limited partner who invests and the second is the general partner who is the fund manager.
Companies of Hedge Funds are opened in such countries where taxes are very low and tax benefits are very high and at the same time the rules and regulations are not very strict.
The diversification of portfolio in hedge fund is very high.
Currency, Commodity, Stocks, Real Estate, Equity invest more or less in every sector.
The fund manager invests and trades with the partner's money.
Every hedge fund manager has basically 4 strategies.
Event-driven
relative value
micro hedge funds
equity hedge funds
Event-driven - In event-driven mergers and acquisitions, the fund manager's money is spent.
Fund manager takes long or short position in public equity in relative value
The fund manager takes a long or short position in a micro hedge fund, Micro Economics Globally
In equity hedge funds, the fund manager takes long or short positions in public equities.
How to invest in hedge fund? And what are the things that need to be kept in mind before investing?
First of all we will see what is investment strategy?
What is the historical return of the fund?
And how much is the assets under management?
What is the reputation of the management company? And what is the competitive advantage of the company?
The 2 biggest benefits of hedge funds are
First is superior performance when the market is going down.
Second, this portfolio is very diversified, due to which the chances of negative returns are very less.
Along with this, there are 2 big risks of hedge fund.
Firstly, the rules and regulations are very light.
Second thing, it is very challenging to analyze this fund. Transparency is very less in hedge funds.
Can I invest in a hedge fund?
The minimum amount to invest in a hedge fund in India is 1 crore
And not everyone can invest in it
hedge-fund
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