The word “hedge” means to manage risks and hedge funds basically invests the investor’s money using any strategy such as short selling (short selling is the process of selling a stock without really owning them that is by borrowing them from someone who owns it and then buying back the stock to close the loan), leveraging (using borrowed money for an investment expecting profits earned would be higher than the interest amount ),arbitraging( taking advantage of the price advantage existing between two or markets) ,swaps etc and can invest in any fund such as stocks, bonds, commodities, currencies, derivatives etc.
Investing in hedge fund is not like mutual funds as only accredited investors (investors having a minimum level of income and assets) can only invest in hedge funds. These may include institutional investors such as insurance companies, pension funds, family offices and high net worth individuals.
Hedge Funds in India is a new investing option. It was in May last year SEBI opened up regulation for Alternative Investment Fund, thus opening the gates for domestic hedge funds. Investments in India were allowed only through FII’s (Foreign Institutional Investors).
Advantages of hedge funds:
The main advantage of hedge funds is that they help in thriving greater returns. Moreover they have extremely flexible investment options which help them to fetch a greater return and also minimize risk.