Mutual Fund

A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities.[1] In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States.[2] Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. In the United Kingdom and western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds.

In Australia the term "mutual fund" is generally not used; the name "managed fund" is used instead. However, "managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in which investors' money is managed by a third party (NB: usually an investment professional or organization). Most managed funds are open-ended (i.e., there is no established maximum number of shares that can be issued); however, this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on when money invested in it can be accessed.

Hedge Fund

A hedge fund is an investment fund charging a performance fee and typically open to only a limited range of investors. In the United States, hedge funds are open to accredited investors only. Because of this restriction they are usually exempt from any direct regulation by the SEC, NASD and other regulatory bodies.

Though the funds do not necessarily hedge their investments against adverse market moves, the term is used to distinguish them from regulated retail investment funds such as mutual funds and pension funds, and from insurance companies.

Hedge funds' activities are limited only by the terms of the contracts governing the particular fund. They can follow complex investment strategies, being long or short assets and entering into futures, swaps and other derivative contracts.

The funds, often organized as limited partnerships in the United States, typically invest on behalf of institutions and high-net-worth individuals. A common objective is to generate returns that are not closely correlated to those of the broader financial markets.