What Is a Hedge Fund?

Hedge funds vs. Mutual Funds

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In the investment world, a mutual fund is the closest peer to a hedge fund. They both have many things in common like used investment instruments. Both hedge funds and mutual funds invest in securities like equities or debt securities (for example bonds). Also, hedge funds and mutual funds are open-ended, both offering the possibility for investors to withdraw their money at any time (however, usually investors prefer to keep their money in a fund for some time in order to achieve a higher return).

Nevertheless, a hedge fund is a more sophisticated mechanism. It has more money invested in it, or assets under management, and while a mutual fund can have many investors, a hedge fund usually involves a restricted number of people and is not publicly traded.