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The ‘word’ hedge stands for safety security and a limit to reducing the possibility of loss while investing a pool of money (called funds) from high-net-worth investors. In simple words, a hedge is a type of shield that protect the funds against risk in the context of investments. Only a few investors, such as banks, insurance companies, high-net-worth individuals (HNIs), families, endowments, and pension funds, are permitted to invest in hedge funds. All investors who have invested their money are called limited partners and the person who manages this pool of collected money is called a general partner. The hedge fund is in the initial phase of popularity in recent years due to the growing interest of high-net-worth individuals and institutional investors in diversifying their investment portfolios. The hedge fund has boundaries of losses on investments but with the potential for higher returns. These funds are neither regulated by the SEBI (Security Exchange Board of India) nor registered with it. Which means that they may be more susceptible to fraud and mismanagement. However, hedge funds do not need to disclose their NAVs (Net Asset Value) like other mutual funds. Moreover, due to the eligibility of having a high minimum investment requirement in India, hedge funds get inaccessible for many individuals. Overall, hedge funds in India can offer investors the potential for high returns, but it is essential to carefully consider the risks involved before making any investment decisions. Now the question is ‘how do these funds work? Right! So let’s understand this better in the below section.

Hedge funds are the types of funds managed by fund managers and thus they tend to be more expensive as compared to the other mutual fund. Although these funds can be afforded easily by those financially well-established individuals. However, you must have surplus funds and be a significant risk-taker as the manager sells and buy the hedge fund at a fast pace speed to keep up the market volatility. As we all know the fact that the more risk, the more profit with more complexities structural process. If you are a beginner then you would require a manager to manage your fund. Hence, the expense ratio ( fee to manage your hedge fund) is quite heavy than other mutual funds. The expense ratio can be between 15% to 20% on your returns depending upon the fund manager. Additionally, it is always good to be crystal clear about every aspect of a hedge fund before investing in it.

Hedge funds are a type of investment vehicle that is typically only available to accredited investors and institutional investors. They are known for their active management strategies, which aim to generate higher returns than traditional investment options such as mutual funds or exchange-traded funds. Some of the key features of hedge funds include: Alternative investment strategies: Hedge funds often use non-traditional investment strategies, such as short selling, derivatives trading, leverage, and other sophisticated techniques. Limited regulation: Hedge funds are typically subject to less regulatory oversight than other types of investment funds. This allows hedge fund managers greater flexibility in their investment strategies. Limited liquidity: Hedge funds often have limited liquidity, meaning that investors may not be able to withdraw their money immediately upon request. This is because hedge funds may invest in assets that are difficult to sell quickly. High minimum investments: Hedge funds typically require high minimum investments, often in the millions of dollars. This is because they are designed for high-net-worth individuals and institutional investors. Performance fees: Hedge fund managers often charge performance fees in addition to management fees. Performance fees are typically a percentage of the fund's profits, which gives managers an incentive to generate higher returns for investors. Risk management: Hedge funds often employ risk management strategies to protect their portfolios from market volatility and other risks. These strategies may include diversification, hedging, and other risk-reducing techniques. Overall, hedge funds are known for their unique investment strategies and limited accessibility. They can offer high potential returns but also come with high risk and limited liquidity.

In general, the main goal of hedge funds is to generate higher returns by implementing trading strategies regardless of the market’s volatility. In layman's words, hedge funds are concerned with making money regardless of whether the value of the stocks or other assets they have invested in is rising or falling. They invest the pooled money of the investors in equities, debt, and derivatives. These derivatives include futures and options. In the case of equities and debt securities, the trading techniques are used in a stock market or buying it directly from the company in a private placement. They mostly put their money in small market sectors to reduce the risk. Following are the major strategies that the hedge fund manager uses.

The hedge fund is quite different from other mutual funds. Although the basic structure of hedge funds is similar to other mutual funds. When it comes to investing, trading strategy, leverage, etc. Below is the table showing the difference between the hedge fund and other mutual funds.