QandAs: Finance

What are Hedge Funds?

Answer:
Hedge Funds are the funds

for the purpose of investments and are generally used by the financial institutions to take both long and short positions, trade securities or options or bonds, can use arbitrage and can invest in any of the available opportunity in either equity market or commodity market or currency market where it thinks to gains excellent gains at reduced or minimum risk. These funds are being managed by a team of experienced market professionals.

Hedge Fund’s trading strategies are very much different than any other funds. The Hedge Funds are also exempted from many rules and regulations which are mutual funds and thus they are also allowed to use aggressive strategies in trading which are not available to mutual funds. The primary aim of the Hedge Fund is to reduce volatility and risk as well as working capital and gain positive results from any market condition i.e. falling or gaining markets.

Hedge Funds are following around 14 different investment strategies with different returns and different risks. So before investing in such Hedge Funds one must do a good home work over it. The various types of strategies which are followed by these funds are selling short, placing arbitrage, trading in options and derivatives, investing in deeply discounted securities, investing in anticipation of a specific event and many of the strategies are not related to the direction of the markets.

As due to the different investment strategies they are comparatively safer than any other funds and this is the reason that investments in Hedge Funds are being favored by many public and private institutions like banks, pension funds, etc.

In the last nine years, their has been a lot of interest of investors in Hedge Funds due to their profitable balance sheets even in the worse market situations and this is the reason that why there is a hike of about 20% per year in the number of Hedge Funds.