Hedge Funds are similar to Mutual funds where funds pool investors money and invest with an aim to make profit. Hedge funds are sometimes called as ‘rich man's mutual fund'. A hedge fund is a popular product overseas as it generates absolute returns by investing across assets.
In some countries policies have been initiated to provide hedge fund as alternative investment options to retail investors.
This is a growing segment of asset management industry which is becoming popular not only with high networth individual (HNI) investors but also popular among institutional investors including university funds, pension funds, insurance and endowments.
Unlike, mutual funds, hedge funds are more flexible. Hedge funds are NOT subject to the same regulatory requirements as Mutual Funds.
Hedge funds tend to make more profit in all kinds of markets as they are allowed to leverage, short-sell and other speculative investment practices that are not often used by mutual funds. Hedge funds, are at times detected to be speculative and volatile due to short selling and other strategies involved.
However, hedge funds though are not regulated like mutual funds, they may come under scanner subject to market abuse laws and anti-money laundering procedures.
Hedge funds are also investing in emerging markets in expectation of high returns. Several emerging market regulators have opened their markets to offshore hedge funds by providing authorization as registered foreign investors.
The major benefit in hedge funds is they have the ability to generate positive returns in rising and as well as in falling equity and bond markets.
While, the committee recommended that the hedge funds which are marketed and sold directly to retail investors should be subject to the same disclosure requirements as other Collective Investment Schemes in India.