Long/Short Fund


DEFINITION of 'Long/Short Fund'

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.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  4. Hedge-Like Mutual Fund

    A mutual fund that adopts an alternative investment strategy, ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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