Difference Between Hedge Fund and Managed Fund

Investment is one of the best ways to protect and grow the assets of individuals, corporations, and companies. Many forms of investment have been considered safe through the years, and mutual funds are among the most famous types of investment.

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Most people dream of increasing hard-earned money for a better future, and they search for excellent and safe ways to invest. Hedge and managed funds are more favoured and high-profile investment methods accepted and adopted worldwide.

Both of these funds are similar in operation, but there are differences in their form and functioning.

Key Takeaways

  1. Hedge funds are investment funds that use advanced strategies like leverage and derivatives to generate high returns. In contrast, managed funds are investment funds managed by a professional fund manager and are typically designed to provide investors with long-term growth and income.
  2. Hedge funds are generally only available to accredited investors, while managed funds are available to a wider range.
  3. Hedge and managed funds offer investors a way to diversify their portfolios and earn higher returns than traditional investments.

Hedge Fund vs Managed Fund

The difference between Hedge Fund and Managed Fund is that a hedge fund is a joint investment account for remote capital collection. In a managed fund, the money of different investors is pooled together to form a single fund that offers many benefits for the investors.

Hedge Fund vs Managed Fund

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A hedge fund uses aggressive and diverse strategies to get regular and average returns for its participant investors. A managed fund is managed expertly by a professional fund manager by making different types of investments.


 

Comparison Table

Parameter of ComparisonHedge FundManaged Fund
DescriptionHedge funds are a type of mutual fund managed privately by experts in the field.A managed fund is a type of investment fund. A managed fund is handled expertly by a professional fund manager.
Mode of workinghedge fund uses the funds gathered from ascribed investors. These funds usually function as overseas investment corporations or other private investment firms.In managed fund type of investment, the money of different investors is pooled together to form a single fund that offers many benefits for the investors.
AdvantageHigh returns depend on the amount of investment.Limited returns are distributed equally among the partners.
depositorsThe minimum fund required for the initial investment is one million dollars or a similar amount.Retail investors with limited fund
Risk factorsComparatively highComparatively less

 

What is Hedge Fund?

Hedge funds are commonly known as ‘other mutual funds and are still in the initial phase. The reasons for a person to invest in a hedge fund may differ.

Some see hedge funds as a way to overwhelm the market, but for others, it is a different form of investment other than stocks and bonds.

A hedge is not accessible to everyone. The minimum fund required for the initial investment is one million dollars or a similar amount.

It also consists of lock-in durations where no investors can withdraw funds.

The mandatory fees required in the hedge fund are two per cent and twenty per cent of the profit. Understanding its functioning is a lot more complicated than usual mutual funds and a bit more challenging.

Generally, hedge fund uses the funds gathered from ascribed investors such as insurance firms, banks, high net worth individuals and families, as well as endowments and pension funds.

Hedge funds usually function as overseas investment corporations or other private investment firms. There is no need for them to be registered with SEBI.

They also need not disclose their NAV periodically like other mutual funds.

A hedge fund’s portfolio can include equities, bonds, derivatives, convertible securities, and currencies. That is why they are known as a form of alternate investment.

Aggressive management is mandatory in the case of hedge funds.

hedge fund
 

What is Managed Fund?

A managed fund is a type of investment fund. A managed fund is handled expertly by a professional fund manager by making different types of investments.

The choice of investments within the fund is based on the preformulated norms recited by the fund manager.

In managed fund type of investment, the money of different investors is pooled together to form a single fund that offers many benefits for the investors. By pooling the funds, a rapid increase in buying strength may occur.

There are five wide varieties of managed funds.

Unit trusts: – A unit trust combines money from different investors and then buys various investments using this money. It gives the partners better power for purchasing and sharing the costs and the advantages of professional management.

Unit trusts need a different Trustee Corporation autonomous from the Manager to be the trustee of a fund.

Portfolio Investment Entities: – Portfolio investment entity (PIE) is a type of investment entity that invests the shares from the investors in various kinds of investment plans.

Group Investment Funds: – A group investment fund is a type of investment in which the participants pool the money together to form more buying power, cost-sharing, and the benefits of professional management. It can have the same trustee and manager to operate.

Insurance Bonds: – Insurance bonds include a range of investment-related policies provided by many life Insurance companies.

Superannuation Funds: – In this type of investment, the funds are set for a fixed date to mature their investment. It can be a nominated retirement date or depending upon the account holder’s age. In this mode, the central part of the funds is available as fixed deposit, cash, or conservative, balanced funds.

managed fund

Main Differences Between Hedge Funds and Managed Funds

  1. The main difference between Hedge Funds and Managed Funds is that the minimum amount required to deposit in the Hedge Fund is too high and less in Managed Funds.
  2. A hedge fund operates with complicated strategies and plans, whereas managed funds are simpler and more open.
  3. A hedge fund is not accessible to anyone, but any retailer with a limited fund can access the managed fund.
  4. A hedge fund’s profit margin can be higher than managed funds.
  5. The risk factors associated with hedge funds are higher than managed funds.
Difference Between Hedge Fund and Managed Fund
References
  1. https://jpm.pm-research.com/content/28/1/6.short
  2. https://www.nber.org/papers/w8173.pdf
  3. https://jpm.pm-research.com/content/27/4/97.abstract
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