What's the difference between a mutual fund and a hedge fund?

Mutual Funds
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Both mutual funds and hedge fund are professionally managed investment vehicles, but there are a couple major differences. Just about any investor has access to mutual funds. They’re diversified, easy to buy and easy to sell. Hedge funds on the other hand are only open to accredited investors who have a net worth of at least a million dollars or an income of at least $200,000 over the last 2 years. Hedge funds often have lock up periods, where for a period of time you cannot get your money out of the fund due to their propriety trading methodology that often involves leveraging.

Although not always the case, hedge fund fees are usually much higher than that of mutual funds. The typical two and twenty fee represents the 2% fee on assets under management and the additional 20% of fund profits, which goes to the hedge fund.

November 2004