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An aggressively managed portfolio of investments that use of advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and as well as in international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark) is called as Hedge Funds.
Officially, hedge funds are most frequently set up as private investment partnerships that are open to a very limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often have needed of investors, to keep their money in the fund for at least one year.
For the most of the part, hedge funds (unlike mutual funds) are unregulated because they accommodate to sophisticated investors. In the U.S., laws entail that the majority of investors in the fund be certified. That is, they must bring in a minimum amount of money annually and have a net worth of more than $1 million, along with a noteworthy amount of investment knowledge. You may think of hedge funds as mutual funds for the excellent rich. They are analogous to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more elasticity in nature in its investment strategies.
It is essential to note that hedging is truly the practice of attempting to reduce risk, but the goal of most hedge funds is to get the most out of return on investment. The name itself is mostly historical, as the first hedge funds always try to hedge against the downside risk of a bear market by shorting the market (mutual funds normally can't enter into short positions as one of their primary goals). Nowadays, hedge funds make use of various numbers of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In reality, because hedge fund managers make speculative investments, these funds can carry with it, more risk than the overall market.
A hedge fund is an investment fund open to a restricted range of investors that is permitted by regulators to undertake a boarder range of investment and trading activities than other investment funds and pays a presentation fee to its investment manager. Each fund has its own approach which determines the type of investments and the methods of investment it undertakes. Hedge funds, as a class, invest in a wide range of investments including shares, debt, commodities and so onward.
As the name implies, hedge funds frequently search for to compensate potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most remarkably short selling. Nevertheless, the term "hedge fund" has come to be applied to many funds that do not essentially hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase rather than reduce risk, with the expectation of increasing return.
Hedge funds are characteristically open only to a limited range of professional or wealthy investors. This provides them with exclusion in many jurisdictions from regulations prevailing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund. A hedge fund will characteristically commit itself to a particular investment strategy, investment types and leverage levels via statements in its submission documentation, in this manner giving investors some indication of the nature of the fund.
The net asset value of a hedge fund can run into billions and billions of dollars, and this will typically be multiplied by leverage. Hedge funds dominate certain sphere markets such as trading within derivatives with high-yield ratings and distressed debt.