Many of us binge-watched ‘Suits’ with the witty Harvey Specter fighting financial lawsuit cases for his affluent investment bankers. While watching the show, the unfamiliar jargon — hedge fund, popped up a lot, didn’t it? While some geeks might already have googled, many would have preferred to go on uninterrupted with the entertainment. For all those wondering, let’s dive into the world of hedge funds.
What is a hedge fund?
Before getting into the conventional textbook definition, let’s think of hedge funds as Pav bhaji. The classic Indian dish comes with myriad flavours and a puree of probably every vegetable from the pantry. Such is the nature of a hedge fund, which completes itself with all sorts of assets, from equities to bonds, derivatives, currencies, real estate, and crypto.
A hedge fund is a pool of liquid assets managed by highly professional fund managers. These hedge funds contain a variety of assets. They are considered high-risk. Due to their exorbitant fees and risk, only high-net-worth individuals and wealthy investors can invest in these funds. In India, you need a minimum of 1 crore to invest in a hedge fund. Hedge funds aren’t limited to one category. Let’s understand various types of hedge funds.
Types of Hedge Funds
Domestic Hedge Funds: Domestic hedge funds are funds in which people falling under the country’s taxation can invest.
Offshore Funds: Offshore funds are hedge funds established in another country with liberated taxation norms.
Fund of funds: A fund of funds is a mutual fund that invests in other hedge funds. Hence, by investing in one mutual fund, your investment gets exposure to multiple hedge funds.
How does a hedge fund work?
Hedge Funds are managed in an artistic way that they are engineered to generate profit, regardless of the market conditions. The assets in which the hedge fund is invested are so diversified that when one asset becomes low yielded, another pumps up. The overall fund, hence, is completely balanced with consistent returns. Did you know? Indian Hedge funds have a record of 18% average annualized return, which is better than the hedge fund performance of most countries. In fact, Indian Hedge Funds are also known to beat ETF(Exchange Traded Funds) returns.
We believe we’re successful in convincing you how lucrative hedge funds are! Would you prefer investing in hedge funds to give your money a taste of a perilous adventure? Or do you prefer safer investment options? Let us know in the comments below.