Question

onsidering your risk aversion level, you make investment into a hedge fund or a mutual fund?...

onsidering your risk aversion level, you make investment into a hedge fund or a mutual fund? Why?

Homework Answers

Answer #1

This is because the strategies employed and the risks taken in the two investment vehicles is quite different. In a mutual fund, they are not allowed to short any stock which decreases the risk considerably where as in a hedge fund all kinds of derivatives etc are also used which makes the strategies riskier. Also, an investor can pull out their money from a mutual fund when they want but there is a fixed period in a hedge fund before which they can't take their money out. Also, mutual funds are for everyone but because of the high risk, only high net worth individuals are allowed to invest in hedge funds.

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