| Definition |
A privately managed investment fund that uses advanced strategies to generate high returns for high-net-worth investors. |
An investment vehicle that pools money from the general public to invest in diversified assets like stocks, bonds, etc. |
| Investor Type |
Accredited or institutional investors; typically high-net-worth individuals (HNIs). |
Open to retail investors and the general public. |
| Regulation |
Lightly regulated; operates with greater flexibility and fewer restrictions. |
Highly regulated by government bodies like SEBI (India), SEC (U.S.). |
| Risk Level |
High risk due to aggressive strategies and leverage. |
Moderate to low risk depending on fund type (equity, debt, hybrid, etc.). |
| Return Objective |
Absolute returns, often irrespective of market performance. |
Relative returns, usually benchmarked against an index. |
| Investment Strategy |
Uses leverage, derivatives, short selling, arbitrage, etc. |
Follows traditional long-only strategies and diversified holdings. |
| Transparency |
Low; portfolio details are often confidential. |
High; regular disclosures of portfolio and performance. |
| Liquidity |
Lower liquidity; lock-in periods are common. |
High liquidity; investors can redeem units on any business day. |
| Minimum Investment |
Very high; often starts from ₹1 crore or more in India. |
Low; starts from ₹100–₹5,000 depending on the scheme. |
| Fees |
Typically follows “2 and 20” model: 2% management fee + 20% performance fee. |
Charges expense ratio (typically 0.5% to 2%) with no performance-based fees. |
| Tax Treatment |
Complex and may vary based on strategy and jurisdiction. |
Simpler tax structure; treated based on fund category (equity/debt). |
| Leverage Usage |
Frequently uses borrowed money to enhance returns. |
Rarely uses leverage due to regulatory limits. |
| Redemption Flexibility |
May allow monthly, quarterly, or yearly redemptions. |
Usually allows daily redemptions. |
| Benchmarking |
Not benchmarked; aims for positive returns regardless of market. |
Benchmarked against indices like Nifty, Sensex, etc. |
| Examples (India/Global) |
India: Avendus Absolute Return Fund; Global: Bridgewater Associates, Renaissance Technologies. |
India: SBI Bluechip Fund, Axis Long Term Equity; Global: Vanguard 500 Index Fund. |
| Target Audience |
Wealthy, risk-tolerant investors seeking high returns. |
Mass investors seeking wealth creation with varied risk appetite. |
| Legal Structure |
Often structured as private limited partnerships or trusts. |
Usually structured as open-ended investment companies or trusts. |
| Use in Portfolio |
Alternative investment component with high-risk/high-reward exposure. |
Core portfolio component for long-term capital growth or income. |
| Exit Load |
Usually not applicable due to lock-in or redemption terms. |
May apply exit load if redeemed before minimum holding period. |
Hedge Fund vs Mutual Fund