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Hedge Funds- An Overview

Hedge Fund represents a kind of vested investments by any self owned organizations for minimising the effects of any kind of substantial gain or losses suffered in the trade in exchange of cash transactions during particular financial period. These funds are highly credible in bringing huge reserves and surplus and achieve primarily objective of high end returns backed by minimal efforts of both investing party as well as that of organization. It’s basic calculation is involved on share of the overall fund net asset value versus return on investment achieved. An Investor mainly invests seeing long and short term benefits and mainly the returns associated with it. The primary key benefits also the USP of Hedge Funds are:

  • Exempted from regulations imposed by regulatory bodies or government thereby acting as self independent mode of funds bringing more investment, shares, profitability etc.
  • Independent of Market and Economic fluctuations prevailing in current context of market and thereby achieving highest returns with minimal investment, cash reserves, Net asset Value and last but not the least achieving amicable and good economic condition.
  • Improves stock trading as it indicates the financial position of the firms and in turn shows the credibility of the investors to invest with such firms.

However notwithstanding these funds are also associated with pitfalls as in case of any other thing associated with us which all contains pitfalls as well as advantages and are:

ü  Not being recommended where the company is already undergoing huge debts, financial risk associated is higher etc and poor infrastructural organizations.

ü  Increase in credit, currency, Interest rates and depreciation of stock market thereby creating volatility and huge loss of money.

ü  High risk of customer expectation with regard to particular product and thereby being a potential loss to firm as it results in the demands to be on higher side when the availability of product is on a lesser side.

ü  Cannot design overall particular strategy for all Hedge funds. So categorically risk associated is not been determined equally.

Hedge funds normally are categorised as Long term-Short term funds, Market-neutral funds, Event and Macro. Coming to the terminology as the name suggests for Long-short term funds, it refers to as time factor and also buying and selling factor of shares for long term and short term and to create amicable space between both investors (Seller and buyer). Market-Neutral funds are highly characterised with association of lateral movements of stock and other commodities in economic market. However unlike mutual funds, which are completely dependent on market, these are influenced only partially. Event driven funds are classified according to catastrophe of events occurring and impact it has on market and can be grouped as merger, acquisition, takeovers, winding up due to resulted failure or loss.

Thus they are economically very efficient in maintaining good cash flow and reserves and  acts as a major booster globally generating 2-5% of assets and contributing to growth of a country.

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