What Are Hedge Funds?

Ratin DSIJ / 23 Jul 2026 / Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund

Could you please explain what hedge funds are? - Gohil Pushkar [EasyDNNnews:PaidContentStart]

Editor Responds : Thank you for your question. Hedge funds are professionally managed investment funds that typically cater to high-net-worth individuals and institutional investors. Unlike Mutual Funds, hedge funds have greater flexibility in their investment strategies. They can invest in equities, bonds, commodities, currencies, derivatives and other asset classes, while also using techniques such as short selling, leverage and arbitrage to generate returns in both rising and falling markets. The primary objective of a hedge fund is to deliver superior risk-adjusted returns rather than simply outperform a benchmark index. However, these strategies can also involve higher levels of risk and complexity. Therefore, hedge funds are usually subject to fewer regulatory restrictions than mutual funds and often require a large minimum investment. In India, hedge funds operate under the Alternative Investment Funds (AIF) framework regulated by SEBI, primarily as Category III AIFs. They are generally not suitable for retail investors and are meant for sophisticated investors who understand the associated risks.

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