What are funds? These are resources given to a certain project, business, person, or any institutions. Funds are usually made through the process of fund raising. There are purposes in creating funds; one of these can be a collective investment scheme.

This collective investment scheme could either be a mutual fund or hedge fund. Let us discuss these two types of fund.

A mutual fund is a carefully managed collective investment scheme that aims to generate money from many investors. This fund is governed by the board of directors or board of trustees. They will then appoint a fund manager to handle the buying and selling of investments in accordance to the guidelines of the fund’s investments.

There are also advantages as well as disadvantages for this kind of fund. Let us first talk about the advantages which include increased diversification, which means that there is a higher chance that the investments will generate a higher return and pose lower risks. Another advantage is daily liquidity, which means the marketability of the assets will be quick. Professional investment management is also an advantage for mutual funds. Another is to have the opportunity to be able to participate in investments which are only available to high investors. There is also service and convenience in this kind of fund, government insight and ease of comparison.

Along with the advantages is the disadvantages, and these are fees, less control over timing of recognition gains, less predictable income and no opportunity to customize.

Another type of collective investment scheme is the hedge fund. Hedge funds are funds that usually involve complex strategies to patch up losses during a market downturn and, on the other hand, return higher income.

A Hedge funds fund of funds is a portfolio of uncorrelated hedge funds that deliver more positive returns than any other funds. Fund of funds in hedge fund also provides more clear and predictable returns as well as provide more access to other investment strategies and hedge fund managers to make the investment easier to administer.

Other funds include pension funds and private equity. Pension funds are very important funds in the stock market that provides retirement income. This fund is classified as open, closed, public, or private pension funds. The difference between an open and closed pension funds is that an open pension funds has no restrictions on membership and will support at least one pension plan, while a closed pension plan only supports a limited number of pension plan in certain employees. A public pension plan is the one that is under the public sector law, while a private pension plan is under the private sector law.

Private equity is generally made by investors like a private equity firm, venture capital firm, or an angel investor. These investors have different goals and investment strategies. Among these strategies are the leveraged buyouts, distressed investments, mezzanine capital, venture capital, and growth capital. In usual leveraged buyouts, private equity firms gain more control of the existing firm while, in a venture capital or growth capital, investors only invest on small, newly developed companies and rarely have control over them.

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