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Increased returns (doubtlessly)
One of many most important features that units a hedge fund other than different funding sorts is the aggressive funding technique. Hedge funds don’t fiddle, they go onerous for the best returns doable.
Flexibility
One other benefit of a hedge fund is that it affords a bit extra flexibility than mutual funds. As investments in hedge funds aren’t traded publicly and don’t have any actual physique regulating their efficiency, a hedge fund supervisor can use a spread of methods together with derivatives, leverage, and quick promoting.
Variety
A hedge fund can put money into just about something, whether or not it’s actual property, land, shares, currencies, or derivatives.
When in comparison with different varieties of funding like mutual funds, you’re normally restricted to only shares or bonds. So, in case you are searching for a bit extra range in your portfolio, a hedge fund is likely to be for you.
Disadvantages of Hedge Funds
Charges
A significant drawback for hedge funds is that they normally have excessive charges hooked up. Most will use a charge construction known as 2 and 20, which we’ll clarify.
Extra danger
Hedge funds use a extra aggressive funding technique. This implies excessive danger and (hopefully) excessive return. However the primary factor to find out about any kind of funding is that nothing is assured.
These excessive returns can simply as simply turn out to be excessive losses. The sort that makes your eyes water.
Cash is commonly locked away
Many hedge funds require traders to basically lock away their cash for years to get the utmost return on funding.
This might not be a difficulty for individuals who are used to conserving their cash out there long-term, nevertheless it does imply a bit much less flexibility to promote everytime you need. They’re not for the short-term investor.
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