Question

What is a hedge fund? How is it different from a mutual fund? B. Describe (not just list) two strategies that hedge funds employ that are different from strategies employed by mutual funds. The description should be detailed enough that a layperson can understand it.

Answer #1

A hedge fund is a pool investment vehicle which invest in higer risk opportunities and are available to only high net worth individuals. The fees is high and they also invest in alternative investments and derivatives etc.

Whereas a mutual fund is a pool investment vehicle which invests in comparatively low risk investment and are available to retail investments for diversification benefits by a fund manager. The fees is also low and they invest in stable investment instruments.

Strategies :-

1) derivatives - hedge funds want to make money if the market is up or down so they also invest in options but mutual funds do not invest.

2.) Short selling - hedge funds also employ risky strategies like short selling which mutual funds do not employM

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