Investment is one of the best ways to protect and grow the assets of individuals, corporations, and companies. There are many forms of investment considered safe through the years and mutual funds are one of the famous types of investment among them.
Increasing the hard-earned money for a better future is the dream of most people and they search for good and safe ways of investment. Hedge funds and managed funds are more favored and high-profile investment methods accepted and adopted worldwide.
Both of these funds are a lot similar in operation but there are differences in their form and functioning as well.
Hedge Fund vs Managed Fund
The main difference between Hedge Fund and Managed Fund is that a hedge fund is a combined form of investment that is accountable for the remote collection of capital. In a managed fund, the money of different investors is pooled together to form a single fund that offers many benefits for the investors.
A hedge fund is operated by using aggressive and diverse strategies to get regular and normal returns for all of their participant investors. A managed fund is managed expertly by a professional fund manager by making different types of investments.
Comparison Table Between Hedge Fund and Managed Fund (in Tabular Form)
| Parameter of Comparison | Hedge Fund | Managed Fund |
|---|---|---|
| Description | Hedge funds are a type of mutual fund that is managed privately by the experts of the field. | A managed fund is a type of investment fund. A managed fund is managed expertly by a professional fund manager. |
| Mode of working | hedge 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. |
| Advantage | High returns depend on the amount of investment. | Limited returns distributed equally among the partners. |
| depositors | The minimum fund required for making the initial investment is one million dollars or a similar amount | Retail investors with limited fund |
| Risk factors | Comparatively high | Comparatively 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 is a way to overwhelm the market but for some 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 making the initial investment is one million dollars or a similar amount. It also consists of lock-in durations in which none of the investors can withdraw funds.
The mandatory fees required in the hedge fund are two percent along with the twenty percent of the profit. It is a lot complicated than usual mutual funds and a bit more difficult to understand its functioning.
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 kinds of mutual funds.
The portfolio of a hedge fund 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.
What is Managed Fund?
A managed fund is a type of investment fund. A managed fund is managed 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 the pooling of the funds, a rapid increase in the buying strength may occur.
There are five major varieties of managed funds.
Unit trusts: – A unit trust acts by combining money from different investors and then buying various investments using this money. It gives the partners better power for buying and sharing the costs along with 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 and cost-sharing as well as the benefits of professional management. It can have the same trustee and manager to operate.
Insurance Bonds: – Insurance bonds included 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 depend upon the age of the account holder. In this mode, the major part of the funds is available as fixed deposit, cash, or conservative balanced funds.
Main Differences Between Hedge Fund and Managed Fund
- The main difference between Hedge Fund and Managed Fund is, the minimum amount required to deposit in the Hedge Fund is too high and it is less in Managed Funds.
- A hedge fund is operating with complicated strategies and plans whereas managed funds are simpler and more open.
- A hedge fund is not accessible for anyone but the managed fund can be accessed by any retailer with a limited fund.
- The profit margin of a hedge fund can be high in comparison with managed funds.
- The risk factors associated with the hedge fund is higher than managed funds.
Conclusion
People always seek better investment policies. Managed funds are safer than many other types of investments. It can also ensure tax-friendly ways to save the hard-earned money for depositors.
A hedge fund is also deriving as one of the highly profitable modes of investment among many companies, insurance firms and high-profile individuals to grow their assets. It is not for all.
Thorough study before making any kind of investment and a good discussion with experts will help one to find the best plan of investment according to his/her access to funds.
References
- https://jpm.pm-research.com/content/28/1/6.short
- https://www.nber.org/papers/w8173.pdf
- https://jpm.pm-research.com/content/27/4/97.abstract