Increased returns (doubtlessly)
One of many fundamental features that units a hedge fund aside from different funding varieties is the aggressive funding technique. Hedge funds don’t fiddle, they go laborious for the very best returns doable.
One other benefit of a hedge fund is that it presents a bit extra flexibility than mutual funds. As investments in hedge funds aren’t traded publicly and don’t have any actual physique regulating their efficiency, a hedge fund supervisor can use a spread of methods together with derivatives, leverage, and quick promoting.
A hedge fund can spend money on just about something, whether or not it’s actual property, land, shares, currencies, or derivatives.
When in comparison with different varieties of funding like mutual funds, you’re normally restricted to only shares or bonds. So, if you’re searching for a bit extra range in your portfolio, a hedge fund is likely to be for you.
Disadvantages of Hedge Funds
A serious drawback for hedge funds is that they normally have excessive charges connected. Most will use a charge construction known as 2 and 20, which we’ll clarify.
Hedge funds use a extra aggressive funding technique. This implies excessive threat and (hopefully) excessive return. However the primary factor to learn about any kind of funding is that nothing is assured.
These excessive returns can simply as simply turn out to be excessive losses. The sort that makes your eyes water.
Cash is usually locked away
Many hedge funds require traders to primarily lock away their cash for years to get the utmost return on funding.
This will not be a problem for many who are used to conserving their cash available in the market long-term, however it does imply a bit much less flexibility to promote everytime you need. They’re not for the short-term investor.