A Hedge Fund is an investment fund which is formed to take any possible investment route or trading path to generate higher absolute returns. The main aim of hedge funds is to generate as much profit as possible using any kind of financial route from shares to derivatives to hedging etc.
The basic characteristics of Hedge Fund are
Hedge funds are formed to generate higher absolute returns. While doing this, normally they do not follow any specific benchmark or stock indexes.
Hedge funds take any possible financial route of investment other than the conventional investment method like buy-sell of shares, bonds and normal derivatives etc.
Hedge funds use short-selling, complex derivatives, highly leveraged shorting techniques during bear market, investment on any financial news or rumor as a source of generating more profit.
Hedge funds are very less regulated by the regulatory authorities and they themselves decide the data or result to be published to the investors. Because of this reason, hedge funds are very much aggressively managed.
Hedge funds are available to only limited number of investors with very high net worth as the minimum eligible amount to invest in a hedge fund is normally kept very high.
As they invest in very risky investments, the rate of failure is also very high.
Hedge funds work with very high leverage, means they borrow huge money from the market to invest them in different financial instruments.