What Is A Hedge Fund?
A person carrying a briefcase crosses a street. (Photographer: Jessica Nolte/Bloomberg)

What Is A Hedge Fund?

This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.

Hedge Fund: Definition, Meaning & Basics

The concept of a "hedge fund" has its origins in an investment strategy where returns can be generated higher than the benchmark stock market return.

A hedge fund is categorised as an alternative investment fund (AIF) under SEBI rules and invests in various asset classes using unconventional strategies. It pools money from high net-worth individuals and institutional investors. These funds do not source money from retail investors. In many countries there is a minimum threshold for investment or accreditation required so as to protect small investors from investing in such higher risk funds. Hedge funds are not regulated like some of the conventional funds, such as mutual funds, pension funds, etc.

Hedge funds are actively managed and hence charge performance as well as fund management fees from their investors. A performance fee is charged once the returns exceed a certain threshold.

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