What is a Hedge Fund?
Hedge Fund is a is fund which takes long and short positions, uses arbitrage, buys and sells undervalued securities, trade options or bonds and invest in almost all the opportunity arises in any market where it sees impressive gains at reduced risk.
The most attractive aspect about hedge fund is that, their aim is to reduce the risk and volatility. At the same time, they offers high returns under different market conditions. However, strategies may differ as per risk, return and volatility. For example, there could be some funds which may hedge only against the equity market market downturns.
However, a global hedge fund invests in shares, bonds, options, and foreign currencies. These types are not very common. Only about 5 percent of the hedge funds are the global funds.
Features of Hedge Fund
Positive Returns – Most of the hedge funds have the strategies that have the capability to generate positive returns in both rising and falling equity and bond markets.
Wide Choices – There is huge variety of investment styles in this form of funds. There is no correlation of these investment styles with each other. Hence provides a wide choice of hedge fund strategies to meet investors investment objectives.
High Returns – According to various researches conducted in hedge funds, it shows that hedge funds have higher returns and lower risk and volatility rate.
Risk Reduction – Including the hedge funds in the balanced portfolio results in reducing the overall risk and volatility of the portfolio. Hence results in increasing the returns of the portfolio.
Ideal Investment – It eliminates the need to correctly timing the entry and exit from the markets. Hence they results in providing long term solution to the investors.
Diversification – In comparison to traditional investing, adding hedge fund in investment portfolio results in better diversification of your investment portfolio.