Hedge Funds vs. Mutual Funds
What are the key differences between hedge fund and mutual funds?
- Mutual funds are registered with the SEC and shares of mutual funds trade similarly to stocks. While many hedge funds are registered with the SEC, not all are required to do so and hedge funds do not trade on exchanges (though shares of some hedge fund management companies do).
- Mutual funds have 7 days to return assets to an investor that requests a redemption. There are no rules regarding hedge fund redemptions. In some cases hedge funds only allow redemption of client assets quarterly or even annually.
- Mutual funds can be sold via exchange or directly to retail investors. Hedge funds may only be sold or offered to "qualified" or "accredited" investors who meet certain financial criteria.
- Mutual funds take a management fee based on the fund's assets (typically 1% or so). Hedge funds earn a management fee (typically 1-2%) and a share of the fund's returns (typically 10-20% of gains).
- Mutual funds have a minimum investment of as little as $10-$500. Most hedge funds have minimum initial investments of $100,000 - $1,000,000.
These are some of the basic differences between hedge funds and mutual funds.
