Difference between Hedge Fund & Mutual Fund in Indian Perspective?
Question answered by Rapa
The concepts remain same whether its in India or in any other country.
A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. In the United States, hedge funds are open to accredited investors only. Because of this restriction, they are usually exempt from any direct regulation by regulatory bodies. Hedge funds are credited to Alfred Winslow Jones for their invention in 1949.
As a hedge fund's investment activities are limited only by the contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.
As their name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging via any number of methods. However, the term "hedge fund" has come in modern parlance to be overused and inappropriately applied to any absolute-return fund – many of these so-called "hedge funds" do not actually hedge their investments.
Hedge funds have acquired a reputation for secrecy. Unlike open-to-the-public "retail" funds (e.g., U.S. mutual funds) which market freely to the public, in most countries, hedge funds are specifically prohibited from marketing to investors who are not professional investors or individuals with sufficient private wealth. This limits the information a hedge fund can legally release. Additionally, divulging a hedge fund's methods could unreasonably compromise their business interests; this limits the information a hedge fund would want to release.
Since hedge fund assets can run into many billions of dollars and will usually be multiplied by leverage, their sway over markets, whether they succeed or fail, is potentially substantial and there is a continuing debate over whether they should be more thoroughly regulated.
Hedge fund risk
Investing in a hedge fund is considered to be a riskier proposition than investing in a regulated fund, despite the traditional notion of a "hedge" being a means of reducing the risk of a bet or investment. The following are some of the primary reasons for the increased risk:
Leverage - in addition to putting money into the fund by investors, a hedge fund will typically borrow money, with certain funds borrowing sums many times greater than the initial investment. Where a hedge fund has borrowed $9 for every $1 invested, a loss of only 10% of the value of the investments of the hedge fund will wipe out 100% of the value of the investor's stake in the fund, once the creditors have called in their loans. At the beginning of 1998, shortly before its collapse, Long Term Capital Management had borrowed over $26 for each $1 invested.
Short selling - due to the nature of short selling, the losses that can be incurred on a losing bet are theoretically limitless, unless the short position directly hedges a corresponding long position. Therefore, where a hedge fund uses short selling as an investment strategy rather than as a hedging strategy it can suffer very high losses if the market turns against it.
Appetite for risk - hedge funds are culturally more likely than other types of funds to take on underlying investments that carry high degrees of risk, such as high yield bonds, distressed securities and collateralised debt obligations based on sub-prime mortgages.
Lack of transparency - hedge funds are secretive entities. It can therefore be difficult for an investor to assess trading strategies, diversification of the portfolio and other factors relevant to an investment decision.
Lack of regulation - hedge funds are not subject to as much oversight from financial regulators, and therefore some may carry undisclosed structural risks.
Investors in hedge funds are willing to take these risks because of the corresponding rewards. Leverage amplifies profits as well as losses; short selling opens up new investment opportunities; riskier investments typically provide higher returns; secrecy helps to prevent imitation by competitors; and being unregulated reduces costs and allows the investment manager more freedom to make decisions on a purely commercial basis.
A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.
Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States. Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund may be used as a generic term for various types of collective investment vehicle. In the United Kingdom and western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds. In Australia and New Zealand the term "mutual fund" is generally not used; the name "managed fund" is used instead.
Types of mutual funds
The term mutual fund is the common name for an open-end investment company. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund.
Mutual funds may be legally structured as corporations or business trusts but in either instance are classed as open-end investment companies by the SEC.
Other funds have a limited number of shares; these are either closed-end funds or unit investment trusts, neither of which is a mutual fund.
A relatively recent innovation, the exchange traded fund (ETF), is often formulated as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. An ETF usually tracks a stock index (see Index funds). Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Investors typically purchase shares in small quantities through brokers at a small premium or discount to the net asset value; this is how the institutional investor makes its profit. Because the institutional investors handle the majority of trades, ETFs are more efficient than traditional mutual funds (which are continuously issuing new securities and redeeming old ones, keeping detailed records of such issuance and redemption transactions, and, to effect such transactions, continually buying and selling securities and maintaining liquidity position) and therefore tend to have lower expenses. ETFs are traded throughout the day on a stock exchange, just like closed-end funds.
Exchange traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are unable to participate in traditional US mutual funds.
Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers.
Hope this info is useful...
Opening a guitar shop?
Im 17, about to goto college and im wondering if i should goto college for business, so i could open up a shop! What else would i need to do so?
Question answered by Adam D
First learn that go to is 2 words, not 1.
I would open a hybrid space... i.e. a place that doesn't just sell guitars. Sell other instruments, but also provide lessons for beginning players. Selling them a $300 practice amp and crap guitar is one thing, where you make maybe $50 on the sale after your expenses. It's another thing to get the kid signed up for lessons at $30 to $40/hour, not to mention you build a relationship with them to buy better gear, as well as strings and lesson books.
If you find a spot big enough, maybe you put a studio next door.
To do this, you gotta have the right credentials. Just saying you can play the guitar, doesn't mean you can teach people, so I suggest getting a degree or certificate for guitar. This will only make your business that much more professional. Berklee school of music now offers online courses. You can get accredited in a specific area, but it's still pretty expensive.
Hire other musicians that rent out a small room so they can teach as well. Having 1 guitar player who works well with beginners and maybe 2 advanced teachers, 1 who can teach Jazz, and another who is more suited for Classical and other genres, as well as other musicians, like piano/keyboard, flute, violin, etc.
Business school is a great idea... specifically the management classes. A lot of business schools are considered "Management", with an option in a specific area, like IT, Marketing, Accounting, Finance, etc, so getting a Management degree with an option in marketing would be a good place to start.
Next thing you have to worry about is getting a loan from a bank. It's gonna be hard to get one if you start taking out student loans or if you aquire any other type of debt.
The best thing about getting a Management degree, is that you'll be able to take this with you to other job opportunities if the guitar store fails, or if you figure that you don't want to do it after all. Having this type of degree will open a ton of opportunities in the business world for you.