What is a Hedge Fund, what do they do and why it’s a bad idea to put your money into it

Many of us have often wondered, “What is a hedge fund?” some of even went online and but it basically ‘Bored us to death’ because it was too ‘wordy’. After reading this, you’ll completely understand what a hedge fund is and how it functions in the investment space.

What is a ‘Hedge’ Fund?

A hedge fund is essentially a fancy name for an investment partnership. It's the marriage of a fund manager, which can frequently be known as the general partner, and the investors in the hedge fund, some of the time known as the limited partners. The limited partners contribute the money and the general partner manages it as per the fund's strategy. A hedge fund's purpose is to amplify investor returns and wipe out risk, henceforth the word "hedge."

What do they do?

Within a hedge fund, the hedge fund manager raises money from outside investors and after that invests it as indicated by whatever strategy he or she has promised to use. There are hedge funds that have practical experience in "long-only" equities, which means they only purchase common stock and never sell short.

There are hedge funds that take part in private equities, which is the buying of whole privately held businesses, frequently taking them over, enhancing operations, and later sponsoring an initial public offering. There are hedge funds that trade junk bonds. There are hedge funds that represent considerable authority in real estate as well.

Would it be a good idea for you to put your money into a Hedge Fund?

For most retail investors, putting resources into a hedge fund is not just a bad idea, it's presumably impossible. Because of the laws and controls governing this industry, any investor who invests with a hedge fund must qualify as an accredited investor. That implies you should have wage more prominent than $200,000 for as long as two years, or a net worth surpassing $1 million, barring your personal residence. Also, hedge funds additionally charge high fees and put that money into highly volatile and risky securities.