What is a 'Long/Short Fund'

A long/short fund is a type of mutual fund that mimics some of the trading strategies typically employed by a hedge fund. Unlike most mutual funds, long/short funds use leverage, derivatives and short positions in an attempt to maximize total returns, regardless of market conditions. The amount of leverage used and the number of derivatives and short positions that long/short funds may contain are limited by law. These funds invest primarily in stocks.

BREAKING DOWN 'Long/Short Fund'

Long/short funds are the mutual fund industry's attempt to bring some of the advantages of a hedge fund to the common investor. Most long/short funds feature higher liquidity than hedge funds, no lock-in period and lower fees. However, they still have higher fees and less liquidity than most mutual funds. Furthermore, unlike most mutual funds, long/short funds usually require a minimum investment of more than $1,000, although some do not. Long/short funds aren't allowed to use as many derivative and short positions nor as much leverage as hedge funds, but they do provide some diversification to the average investor in down markets.

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RELATED FAQS
  1. What is a long-short mutual fund?

    A Long-Short Fund is a mutual fund that holds investments long and in addition it sells securities it does not own (short). ... Read Answer >>
  2. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
  3. What is the purpose of a hedge fund?

    Find out what a hedge fund is, how it is set up and why it is different than other forms of investment partnerships like ... Read Answer >>
  4. Do hedge funds invest in mutual funds?

    Learn whether hedge funds invest in mutual funds. They are permitted to invest in mutual funds but usually avoid doing so ... Read Answer >>
  5. Can mutual funds use leverage?

    Learn about what types of mutual funds use leverage, how leverage can increase returns and what restrictions are in place ... Read Answer >>
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