The Difference Between Hedge Funds and Mutual Funds

When it comes to the securities industry, almost nothing is simple. As a whistleblower law firm, we receive potential tips every day from concerned citizens who aren’t quite sure whether what they’ve seen is technically illegal or not.

This confusion often extends beyond the definition of different types of violations and to the fundamentals of the industry itself. For example, many casual and new investors aren’t entirely clear about just what the difference is between hedge funds and mutual funds.

Hedge Fund vs. Mutual Fund

Hedge and mutual funds do have many core similarities. The funding for both is provided by investors, who essentially trust a fund manager (or managers) to then invest the money smartly and bring back a profit. Mutual funds, however, are generally considered less risky than hedge funds.

Mutual funds, for example, will generally only invest in stocks and bonds. Hedge funds, on the other hand, will make seemingly riskier investments, such as those involving derivatives, real estate and other types of assets.

Hedge funds also typically have investor criteria that must be met before someone can buy in, usually involving net worth. This is reflective of the fund’s riskier nature.

Hedge funds are also known for leveraging their assets in order to make their portfolio look better, and for charging additional fees that aren’t seen in mutual funds, known as “performance fees.”

Whistleblower Lawyers Exposing Fraud

While securities fraud is probably more widely associated with hedge funds, in the end, it can occur in both types. If you think you’ve identified securities fraud involving a hedge or mutual fund, give Meissner Associates a call.

For a free and confidential tip evaluation, simply visit us online and complete the form or give us a call at 1-866-764-3100.