What is the difference between mutual funds and hedge funds
- Investor qualifications
Investors in hedge funds have strict eligibility restrictions. The U.S. securities law stipulates that: if participating in the name of an individual, the individual’s annual income should be at least $200,000 in the last two years; if participating in the name of a family, the couple’s income in the last two years should be at least $300,000. more than US$10,000; if participating in the name of an institution, the net asset should be at least US$1 million. New regulations were made in 1996: the number of participants was expanded from 100 to 500. The conditions for participation are that the individual must own investment securities worth more than $5 million. The general mutual fund does not have this restriction.
- Operation
The operation of hedge funds is unrestricted, with few restrictions on investment portfolios and transactions, and key partners and managers can freely and flexibly use various investment techniques, including short selling. Derivatives trading and leverage. The general mutual fund is more restricted in operation.
- Regulation
Hedge funds are currently unregulated. The U.S. Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940 stipulated that institutions with less than 100 investors do not need to register with financial authorities such as the U.S. Securities and Exchange Commission when they are established, and are exempt from regulation. Because investors are mainly a few very sophisticated and wealthy individuals with strong self-protection ability. In contrast, the supervision of mutual funds is relatively strict, mainly because investors are the general public, and many people lack the necessary understanding of the market. In order to avoid public risks, protect the weak and ensure social safety, strict supervision is implemented. .
- Fundraising methods
Hedge funds are generally launched through private placements, and securities laws stipulate that they may not use any media to advertise when attracting customers. Investors mainly participate in four ways: based on the so-called “investment reliable information” obtained in the upper class; directly knowing the manager of a hedge fund; transferring in through other funds; by investment banks. Special presentations from securities intermediaries or investment advisory firms. The general mutual fund is mostly through public offering, public advertising to entertain customers.
- Can a case be established
Hedge funds often set up offshore funds, which have the advantage of avoiding U.S. law restrictions on the number of investors and tax avoidance. Usually located in tax havens such as the Virgin Islands, Bahamas, Bermuda, Crocodile Island, Dublin and Luxembourg, where taxes are minimal.
So general funds can also hedge, but with a lot of restrictions. In China, because there is no public fund that cannot buy and sell futures and foreign exchange, there is no financial product that can be shorted, so it is impossible to hedge.