Hedge funds and Mutual funds are both pools of moneys invested by individuals ran by a professional money manager. However, to say they are the same thing would be a horrible mistake. Investors should know the difference since this will help them decide which to invest in.
Mutual funds are run by a money manager who usually works for an investment company. An investment company usually runs many different mutual funds each run by a different manager. They key to an investment fund is the fee or fees investors pay to have their money ran by a fund. Mutual funds fee are the same every year regardless of how well the fund does. While the fees usually aren’t excessive, they can be annoying if the fund doesn’t make any money. Be sure to check all fees before investing in any funds.
Hedge Funds are a more unknown investment to the general public. They are ran by an individual money manager. The thing different is only people worth one million dollars or more are allowed to invest in these funds. That is suppose to allow only “educated investors” in the funds since they aren’t regulated. Also, the fees for hedge funds are more than for mutual funds. They are usually a 1% management fee and 20% of profits. This means most hedge fund managers don’t make money unless they make a profit. This can be a better way to invest since the manager might be more dedicated since he has to make money.
The most important thing to take from this is to know any money manager you invest in. They are the one who makes all the moves and the more successful they are, the more successful their investors are. Since most people can not invest in hedge funds, mutual funds are usually the only answer. However, they are fine way for investors to make money in the market.