In finance, it means to protect against risks.Ī hedge fund (also known as funds of funds) is an alternative investment strategy, in which large amount of funds are collected from accredited investors like banks, institutions, insurance companies, High Net Worth Individuals (HNIs) and families.Ĭompared to other investments, hedge funds are considered to be more aggressive in nature and contains high risks. These funds function as private investment partnerships or overseas investment corporations. Investment on Hedge fund are only accessible to accredited investors, and requires less SEC regulations compared to other investment funds. Hedge funds holds money in both long and short stocks strategies and are designed in such a way to generate higher returns whether the market is good or bad. In India, Hedge fund industry is relatively young.Īdvertising Hedge Funds to the public is prohibited. It got a green signal from SEBI (Securities and Exchange Board of India) in 2012 when it allowed alternative investments funds (AIF). Macro hedge funds is an investment in stocks, bonds, options, futures, and sometimes currencies hoping that may be the value of currency change in near future because of factors like global trade, interests rates, or policies. This fund attempts to hedge against declines in equity markets by investing in stocks or stock indices and later shorting them (if they’re overvalued). Here fund manager’s strategy is to invest in undervalued stocks and splitting the large amount in long stocks while shorting the other stocks. In these type, fund manager buy securities that are expected to increase while simultaneously selling short a similar security (like a stock/bond of a different company in the same sector) that is expected to decrease in value. This fund can help a (soon to bankrupt) company to turn themselves into healthier company by buying some of their securities (like bonds that have lost value in the company due to instability in business) in hopes that they will increase in future. Or, fund manager could also buy cheap bonds thinking that it will grow soon (within one year). It completely depends on fund manager’s strategy thus, these bets covers very high risk and the investor can lose all his money this is the reason it is called as distressed funds. This strategy involves purchasing and of stocks of two merging companies to create less risky portfolio. This strategy involves holding of stocks based on overall economic and political views of various countries. This includes holding of short and long positions in equity, fixed income, currencies, commodities and future markets.
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