Mutual funds and hedge funds are similar but have major differences.
Entry. Mutual funds
are for everybody, but hedge funds are for a few sophisticated investors
only.
Structure. Mutual
Funds can be open-ended or closed. Hedge funds are mostly similar to
closed-end funds.
Share Price. A mutual
fund share can be as low as a few hundred dollars, but hedge funds require
millions.
Strategy. Mutual funds
are conservative, but hedge funds are aggressive.
Liquidity. Mutual
funds are traded in the market, so you can redeem, or sell your share to
the company or to another investor when you need the cash. Hedge funds
have lockout periods when you cannot sell your share.
Risk. Hedge funds are
riskier than mutual funds. You can lose all your investment. Mutual fund
risk is lower, and normally you cannot lose everything.
Returns. Hedge fund
returns, to reward investors for higher risks, are higher than mutual
funds, unless the hedge fund is wiped out, in which case your return is
zero.