InvestorQ : What are the advantages of investing in a hedge fund rather than an index fund?
Niharika Kamble made post

What are the advantages of investing in a hedge fund rather than an index fund?

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simran Kaur answered.
1 month ago
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Let us first begin by understanding what these two funds do. A hedge fund is a system that uses pooled funds from multiple individuals, or investors, to achieve a high return. These funds are invested in a lot of different assets. With high returns, however, comes high risk. A majority of hedge funds are only available to accredited investors because a large initial investment is required.

Hedge funds are limited to wealthier investors who can afford the higher fees and risks of hedge fund investing, and institutional investors, including pension funds. An index fund is a type of mutual fund with a portfolio constructed to track the components of a financial market index, such as the Bank Nifty. Index funds are managed to deliver returns close to that of some index.

Since anything can be an index, any fund could structure itself as an index fund. But typical index funds follow established diversified indices, trade infrequently, and charge low fees. If you have a solid capital base, then you should consider investing in hedge funds. Although the risk is much, you are sure of getting good returns on your investments if things go as planned. But if you are starting out as an investor, you can consider starting with index funds; it is cheaper, and easy to understand how it works.

Given just the gist above, you can understand that it is a fool’s task to compare the two as they are both assigned to play completely different games. It's like comparing apples and oranges. However, what I can definitely say is that if you have a solid capital base, then you should consider investing in hedge funds. Although the risk is much, you are sure of getting good returns on your investments if things go as planned. If you are starting out as an investor, you can consider starting with index funds; it is cheaper, and easy to understand how it works.


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