Hedge Funds vs Mutual Funds

Discover the key differences between hedge funds and mutual funds, and make informed investment decisions.
Hedge Funds vs Mutual Funds
3 mins read

In the investment scenario there are two key players: mutual funds and hedge funds. Hedge funds vs mutual funds, each serve distinct purposes and cater to different types of investors. Think of mutual funds as a reliable family vehicle, ideal for the everyday investor aiming for steady growth. Hedge funds, on the other hand, are the high-performance sports cars of the investment world, designed for those with deeper pockets and a taste for risk. This article aims to demystify these investment vehicles, offering clarity on hedge funds vs mutual funds to help you choose which path aligns best with your financial goals.

What are mutual funds?

Mutual funds in India have become a cornerstone for personal investment strategies, offering an accessible way to dive into the stock market. These mutual fund schemes pool money from various investors to invest in a diversified portfolio of stocks, bonds, or other securities. Governed by the Securities and Exchange Board of India (SEBI), mutual funds are transparent, requiring a prospectus that outlines their goals and methodologies. Whether you're drawn to the hands-off approach of index funds or the guided expertise of actively managed funds, the mutual fund arena offers a breadth of options to suit a range of risk tolerances and investment goals.

What are Hedge Funds?

Hedge funds operate in exclusivity and high stakes, attracting a niche group of affluent investors ready to embrace risk for the chance of significant returns. These private investment pools leverage a variety of strategies, including short selling, leverage, and derivatives, to outperform the market. In India, hedge funds are still a growing segment, overseen by SEBI under the category of Alternative Investment Funds (AIFs). The entry bar is set high, both in terms of minimum investment and the expected financial acumen of the investor, making hedge funds a playground for the seasoned and the bold.

Differences between mutual funds and hedge funds


Mutual funds

Hedge funds

Investor Base

Open to the public, ideal for individuals at various income levels.

Reserved for high-net-worth individuals and institutional investors.


Aim for steady growth, mirroring or slightly outperforming market indices.

Seek aggressive growth, employing high-risk strategies for potentially high returns.

Management and Ownership

Managed by professional fund managers without significant ownership stakes.

Fund managers often have personal investments in the fund, aligning their interests with investors.


Strictly regulated by SEBI, ensuring transparency and investor protection.

Less regulated, with more flexibility in investment strategies but with higher risk.


High, with mandatory disclosure of financial statements and performance reports.

Low, with disclosures primarily to investors, maintaining a veil of secrecy around strategies.


Lower fees, generally a percentage of assets under management.

Higher fees, including management fees and performance fees.


High, with the ability to buy or sell shares at net asset value daily.

Lower, with restrictions on withdrawals and potential lock-up periods.

Investment Strategy

Conservative, focusing on publicly traded securities for lower-risk, stable returns.

Aggressive, employing strategies like leverage and short selling for high-risk, high-return potentials.


Hedge funds vs mutual funds represent two contrasting paths within the investment universe. Mutual funds, with their broad accessibility and regulated environment, offer a safer route for individuals looking to grow their wealth over time. Hedge funds, while less accessible, provide a high-octane alternative for those willing to navigate the complexities and volatilities of aggressive investment strategies in search of rapid gains. Understanding the difference between hedge funds vs mutual funds is crucial for any investor aiming to make informed decisions that align with their financial objectives, risk tolerance, and investment horizon. Whether you lean towards the steady journey of mutual funds or the adventurous path of hedge funds, the key is to invest wisely and in accordance with your personal financial goals.

The Bajaj Finserv Mutual Fund Platform for both seasoned investors and newcomers helps them navigate through the often complex waters of financial investment. With over 1000+ mutual funds listed, this platform offers an impressive array of options to cater to diverse investment goals, risk appetites, and financial strategies. The comprehensive selection ensures that whether you're looking to grow your wealth steadily over time or seeking more specialised investment opportunities, the Bajaj Finserv Platform stands ready to meet your needs. You can also use SIP calculator and lumpsum calculator on the platform. Its user-friendly interface, combined with a vast resource of financial knowledge and tools, makes investing accessible and straightforward. In sum, for those looking to make informed, growth-oriented investment decisions, the Bajaj Finserv Mutual Fund Platform presents itself as a distinguished choice for financial planning and investment.

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Frequently asked questions

Are hedge funds better than mutual funds?

Hedge funds are not necessarily better than mutual funds; it depends on the investor's risk tolerance, investment goals, and financial status. Hedge funds often engage in riskier strategies and require a higher investment minimum, making them suitable for more affluent, risk-tolerant investors seeking potentially higher returns.

Is hedge fund legal in India?

Yes, hedge funds are legal in India. They are categorised under Alternative Investment Funds (AIFs) and are regulated by the Securities and Exchange Board of India (SEBI). Hedge funds in India must comply with SEBI's regulations to operate legally.

Why is it called a hedge fund?

The term "hedge fund" originally referred to the practice of hedging, meaning using strategies to offset and manage the risk of market movements. Although modern hedge funds may use a variety of investment strategies, the name stuck because hedging risk is a core concept.

Why would anyone use a hedge fund?

Investors use hedge funds to achieve higher returns and diversify their investment portfolios. Hedge funds have the flexibility to employ a range of strategies, including leveraging and short selling, which are not typically accessible to mutual funds. This can appeal to affluent individuals seeking aggressive growth opportunities.

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