Alternative investment that pools capital from individual or institutional investors to invest in varied assets- HEDGE FUNDS

Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money and trading esoteric assets, in an effort to beat average investment returns for their clients. They are considered risky alternative investment choices. Hedge funds require a high minimum investment or net worth, excluding all but wealthy clients. Hedge fund is a private investment partnership and funds pool that uses varied and complex proprietary strategies and invests or trades in complex products, including listed and unlisted derivatives. A hedge fund is a form of alternative investment that pools capital from individual or institutional investors to invest in varied assets, often relying on complex techniques to build its portfolio and manage risk. Hedge funds can invest in anything from real estate to currencies and other alternative assets; this is one of many ways in which hedge funds differ from mutual funds, which normally only invest in stocks or bonds. The aim of all hedge funds is to maximise investor returns and eliminate risk, regardless of whether the market is going up or down. A hedge fund manager is a financial company or individual that employs professional portfolio managers and analysts in order to establish hedge funds. Hedge fund managers typically earn above average compensation, often from a two-and-twenty fee structure from investors. Hedge fund managers typically specialize in a particular investment strategy that they then use as their fund portfolio's mandate. Hedge fund management is the art of managing high net-worth individuals (HNIs), banks, and insurance companies’ high volume funds; and in turn, help them in gaining huge profits. Here, ‘funds’ refers to the investors’ money and ‘hedge’ refers to protecting investment against the risk. Hedge fund consists of multiple assets, including derivatives, equity, bonds, currencies, and convertible securities. With such a large set of assets, hedge funds need dynamic management, the role of hedge fund managers becomes critical. The foremost role of a fund manager is to hedge the risk of investors against volatile market fluctuations and at the same time, book profits for them. Features of Hedge Funds liquid Investment Hedge funds are known for their little liquidity feature. That’s right. If you are planning to invest in a hedge fund, keep a note that hedge funds do not allow the withdrawal of liquid money at any point in time.  There is a certain limit as to how much liquid money an investment partner can withdraw.  Risky Investments Where there is profit, there is a risk! Hedge funds are an extremely risky alternative investment.  Even though they promise high returns and hefty profits, hedge funds are subjected to market risks. What’s more, hedge funds are aggressive in nature, making them prone to hefty losses.  Taxable Funds While hedge funds are private pooled funds, they are still taxable by the government.   Fund Portfolio Another striking feature of a hedge fund is that it has a diverse fund portfolio. This means that a hedge fund can be either invested in non-traditional assets or traditional assets, depending on the best possible returns.  Considering that hedge funds are open to unconventional investments too, hedge fund managers often opt for derivatives, currencies, leverages, and equity funds.   Fee Ratio Since a hedge fund manager operates the investment assets of a hedge fund, s/he demands a fee ratio that is defined by the ‘two and twenty’ structure.  This structure implies that of all the assets and profits earned by the hedge fund, the manager is subjected to receive 2% of assets and 20% of profits earned in a year. Thus, before investing beware of this feature.   Minimum Investment Cap Unlike mutual funds, hedge funds have a minimum investment cap that leads to a demarcation of eligible investment partners. In a hedge fund, high-net-worth individuals (HNIs), banks, and insurance firms are eligible for becoming investment partners.  Moreover, the minimum investment cap for a hedge fund in India is INR 1crore. This becomes an important feature of a hedge fund.