Mutual Funds vs Hedge Funds: What’s the Difference?

Are you looking for the best ways to invest money? Depending on your financial status, you might be looking into different possible avenues that can provide you with the money you need. 

To help you out, we’ve compiled a list of the top investment vehicles that many people have been talking about lately. In this post, we will discuss the differences between mutual funds vs hedge funds. Read on!

Mutual Funds

A mutual fund is an investment vehicle that pools money from many investors to purchase a variety of different assets and securities. Here’s why it differs from hedge funds.


Mutual funds are a very diverse form of investment vehicle. This allows an investor to diversify their portfolio to give them exposure to various asset classes.

Not only does this help to manage risk by spreading money across different asset classes, but it also provides an opportunity for investors to make strategic investments depending on their risk levels and personal financial goals.


Performance is an important factor to consider when investing in mutual funds, as it will determine the level of return received in the future. 

It can be judged on a few different factors, such as its relative performance compared to other funds, its risk-adjusted performance, its ability to match the benchmark, and its overall performance since its inception. 

Risk Tolerance

The risk tolerance of mutual funds refers to the amount of risk an individual investor is willing to accept while investing in mutual funds.

It’s essential to assess one’s risk tolerance to understand the potential rewards and losses before investing in mutual funds. 

Hedge Funds

Hedge funds are pooled investments that employ a variety of techniques designed to generate returns for their investors in any market condition. Here’s why Hedge funds differ from mutual funds:


The diversity of it is a term that’s used to describe the strategies that hedge funds employ to reduce risk and maximize return on investment.

These strategies are very diverse in nature and can range from long and short positions to sector-focused funds, arbitrage, derivatives, global market exposure, alternative assets, and more. 


Performance varies from fund to fund and is often dependent on the strategies and investments that are used. Generally, hedge funds seek to beat benchmark indices and use modern portfolio theory to manage risk.

Returns are generally consistent over time and are usually higher than other investment vehicles such as mutual funds. 


It’s structured as a limited partnership, with a general partner overseeing the fund who is the assets manager and limited partners who are the investors.

The main structure of hedge funds provides a platform for a portfolio manager to manage assets, coordinate investors, and ensure capital is used in optimum ways. 

Risk Tolerance

The risk tolerance of hedge funds is usually higher than that of other investments, as the managers look to capitalize on opportunities for higher returns.

They do this by employing strategies such as using leverage, short selling, and derivatives to create high returns from a variety of investments. 

Want to know more? Click here to learn more about hedge funds.

Know the Difference Between Mutual Funds vs Hedge Funds Today

Mutual funds vs hedge funds are similar investments but have some distinct differences. Mutual funds offer better liquidity and lower risk, while the best hedge funds offer higher returns but with higher risk and greater illiquidity.

To learn more, consider consulting with a financial professional.

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