What makes Hedge Fund, a Profitable Investment Strategy?

By CIOReview | Monday, June 17, 2019

FREMONT, CA: The decision to invest or not invest in a hedge fund is a critical one. With the extremely high investment minimums, there is bound to be apprehensions on the part of the investors. What works in favor of hedge funds is the fact that they do payback. Depending on one's depth of understanding, a hedge fund can be advantageous or disadvantageous. Proper risk management tools and the ability to score good returns are essential to make hedge funds beneficial. Some of the advantages of hedge funds are listed here.

 •  Flexible in Nature

The flexibility feature of hedge funds helps it to score over the conventional mutual funds. Laws limit the profitability of mutual funds, but in the case of hedge funds, there are strategies that one can leverage to get good returns without big risks. The financial instruments at the disposal of hedge funds make them attractive.

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•  Assertive Investing

Hedge fund investors use aggressive strategies to get better returns. Leverage, derivative, and long and short are some of the aggressive strategies. In leverage, investors use the capital they gain to do trading and stand a chance of making huge profits. With efficient risk management tools in place, investors can somewhat reduce the risk of enormous losses.

•  Profitability

In hedge funds, despite market fluctuations, there is a chance to make large sums of money using specific strategies. One such plan, known as global macro, has an approach in which investments are made by forecasting global economic happenings. Investors try to take significant positions wherever investments have good forecasts.

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•  Availability of Expert Advice

Hedge fund managers and officials are very experienced in matters of finance. Whenever an investor invests in hedge funds, these experts offer knowledge and advice regarding which hedge fund should be used, when to invest, which market to invest in and where more returns are possible.

However, there are limitations regarding withdrawals once the investment is made as one can withdraw only during specific periods and a particular number of times only. Anybody looking to make a hedge fund investment must carefully consider all these aspects before making the final move.