Hedge Funds vs Mutual Funds: Mutual funds, especially the Systematic Investment Plan, have gained widespread recognition. Individual investors primarily invest in a range of equity-oriented mutual fund schemes in an effort to outperform some conventional investment options.

However, after seeing some success recently, investors are also interested in learning more about hedge funds and how they vary from mutual funds. Let’s now understand the key differences between hedge funds and mutual funds.

What are Mutual Funds?
A mutual fund scheme pools the funds of several investors. The complete investment is going to be invested into stocks and also into fixed-income securities. The capital market regulator has specified the investing nature or mandate of each scheme type, including equities, debt, hybrid, solution-oriented, index funds, ETFs, and their subtypes.

Also Read: Top 3 Semiconductor Mutual Funds to Invest in 2025

What are hedge Funds?
Hedge funds are just private investment pools where there are different types of strategies to earn active returns. Let’s now understand different types of strategies in hedge funds.

1. Short Selling: In this strategy, short investments are taken when the market appears hopeless, and when the market starts to rise, the short positions are covered.

2. Long and Short Selling: This type of strategy involves taking both long and short investments in stocks. The main objective is to reduce the market risk and get more returns from the stocks that are going to rise, and also from the stocks that are falling.

3. Event-based: Hedge fund manager tries to focus on the corporate events. With this, the main advantage is going to be on the company’s stock price eventually.

4. Distressed Securities: In this, the hedge fund manager focuses on the bankrupt companies that want to get back to profits. They invest in these types of companies and try to generate profits.

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