Hedge funds and mutual funds both pool investor money, but their structures, strategies, and target investors differ significantly.
Key Differences
- Accessibility:
- Hedge Funds: Limited to accredited investors.
- Mutual Funds: Open to the general public.
- Investment Strategies:
- Hedge Funds: Use aggressive strategies like short-selling, leverage, and derivatives.
- Mutual Funds: Focus on more traditional stock and bond investments.
- Liquidity:
- Hedge Funds: Often have lock-up periods, limiting when you can withdraw funds.
- Mutual Funds: Allow daily redemptions.
- Fees:
- Hedge Funds: Typically charge higher fees (e.g., 2% management and 20% performance).
- Mutual Funds: Charge lower fees, often less than 1%.
Mutual funds suit conservative investors, while hedge funds appeal to those seeking higher returns and are comfortable with more risk.
