Understanding Hedge Funds and Aggressive Growth Mutual Funds
For most people investing in mutual funds goes with an element of risk. Even the most conservative mutual funds do not guarantee the investor constant return on investment but the best hedge funds usually claim they are almost loss-proof. As an investment, the hedge fund can be considered special in the sense that it is not an all comers affair. It is actually a regulated investment fund and it is open to investors who are ready to invest large sums of money for the long term or for the medium term. Typically, most people who invest in hedge funds tie down their money for at least one whole year. Thus, it can be safely concluded that hedge funds are not really liquid.
As a concept, hedge funds work by some kind of intricate balancing act. This means that the manager of a hedge fund will usually try to balance the portfolio of his or her clients. By investing in shorts, safe stocks and volatile stocks, the fund manager aims to minimize loss and maximize profit for his or her clients. Other qualities of this type of investment include the fact the charges are usually on the high side. This is because the fund manager receives both a management fee and a performance fee. This makes the fund manager try to get the best deal for the client because there is more money for the fund manager when the fund is doing well.
Another form of investment for the investor who is not averse to taking risks is the aggressive growth mutual funds. These funds are the exact opposite of the traditional mutual funds. While the mutual fund aims at minimizing risk, the aggressive growth mutual funds simply aim for more profit by taking more risk.
The normal practice is for the manager of this type of fund to target initial public offers (IPO), low price stocks and volatile stocks. The point is that if the fund manager gets it right there will be a lot of money to be made. On the other, there will also be a lot of money to be lost if the fund manager gets it wrong. The best hedge funds may not be as safe as people think they are. In fact, they do not offer the investor a fool-proof hedge. By the same token aggressive mutual funds can also crash. When this happens, investors stand to lose a lot of money. It all boils down to the basic principle of high risk and high return