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What is a Mutual Fund? We have seen this in the previous article.In it, we have seen that by investing in mutual funds, we can earn 12% per annum.
An option like this is available for large investors.They make a lot of money through it.The medium through which they make money is called hedge fund.
The work of a hedge fund protects its portfolio uncertinity.Mutual funds and hedge funds differ in some respects.
They are presented as follows.
- Hedge funds are not officially registered with SEBI (Security Exchange Board of India).
- When investing money in a hedge fund, one cannot invest Rs.100 – 500.
- The investment limit of a hedge fund is for a longer period.
Hedge funds are divided into two types.
- Limited Hedge Fund – in which the investor pays his money to the fund manager.
- General Hedge Fund – This includes the hedge fund manager.
Companies like hedge funds run their business in a country where taxes are paid less.
They get more tax benefits and also choose countries with less rules and regulations for these companies.
Hedge fund companies have high portfolio diversification.They invest in currency, commodity, stock, real estate, equity and bond.
All these investments are handled by the fund manager.
When trading, the fund manager invests from the funds of his limited partner.At the same time, he sometimes has to work on leverage.
What is leverage? – Leverage is money paid for trading in exchange for a property near you.
Benefit of using borrowed capital as a source of funds for investments to expand the firm’s asset base and earn income on risky capital.
Leverage companies fund the fund based on the performance of the fund manager over the past few years.
Every fund manager has some hedge fund strategies.
- Event – In this the hedge fund manager trades with the money received from his limited investor.
- Relative value – In this the fund manager trades for long and short term.
- Micro Hedge Fund – In this the fund manager takes long and short trade positions from public equity.
- Equity Hedge Fund – In this the fund manager trades micro globally short and long.
What is Long and Short Trading?
In long trading almost your money is invested for a maximum period of time.Generally minimum 1 year and maximum 10 years.
In short trading, your money is deposited for a short period of time.
How to calculate hedge fund fees and charges?
Hedge fund charges depend on the performance of the fund manager. In addition, 2% charge is levied on average net asset.
Let us take an example to understand this briefly.
Suppose the previous fund limit was Rs 100 crore and the next year the fund returns by 20%.
The value of both these funds is now 120 crores.Then there are 2% charges so if you divide 100 + 102 = 202 crores by 2, you will get 101 crores.
And if the expense value of that fund is 10% and you get 20% returns.Out of Rs 120 crore, 2% will be deducted, leaving Rs 117.6 crore.
20% of this is paid to the fund manager.
With this money, the fund manager runs his company and pays his staff.
Click here to know about Hedge funds and fees.
How to invest hedge fund?
- Investment strategies
- Investment returns status
- Fund manager performance and reputation
- Compatative advantage
Seeing these things should be invested in hedge.
In this, just like we do all the fundamental checks of the company while taking stock, the same should be done while investing in hedge fund.
Benefits and Risk Hedge Fund
- Superior performance
- Diversify portfolio
- Light rules & regulations
- Analyzing a fund is very challenging.
- Transparency is very low.
Should I invest in hedge fund
- India needs at least Rs 1 crore to invest in hedge funds.
- If only Rs 1 crore does not work, then you need a market savvy person.
- Hedge funds have higher investment potential but their investment duration is longer.
- Hedge funds can make credible personal investments.
- Because he knows the profit and loss estimates and consequences in the market.
If you need more information about hedge fund, you can ask us.
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