What are hedge funds? Can anyone explain to me like I'm a 6 year old?

[Jaquad84]

What are hedge funds? How can investors use them why should a lay investor care?

[ashishsingh]

@Jaquad84

What are hedge funds?

समझो तुमने एक बगीचा लगाया पर रोज कोई ना कोई जानवर आ कर उसे बर्बाद कर देता है तो उसे बचाने के लिए तुमने उसके चारों तरफ एक बाड़ा लगा दिया इससे तुम्हारा बगीचा बर्बाद ना हो वैसे ही जैसे तुमने स्टॉक मार्केट में इन्वेस्ट किया पर स्टॉक मार्केट ऊपर नीचे होता रहता है तो जब भी मार्केट नीचे जाता है तो तुम अपने पैसे को बचाना चाहते और उस पैसे को बचाने के लिए जो तरीका अपनाते हो उसको हेजिन बोलते हैं।

[Jaquad84]

Lovely thank you. Bahut Maja aya padh ke!

[Priya123]

A hedge fund is just a fancy name for an investment partnership that has freer rein to invest aggressively and in a wider variety of financial products than most mutual funds. It’s the marriage of a professional [fund manager], who is often known as the general partner, and the investors, sometimes known as the [limited partners]. Together, they pool their money into the fund. This article outlines the basics of this alternative investment vehicle.

[Jaquad84]

Thanks @Priya123 Awesome to know that. My follow up question would be which are the best hedge funds in India

[Prayag]

As per SEBI, Hedge funds are registered as Category III AIFs -

5. What are Category III AIFs?
AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. [Ref.Regulation 3(4)(c)]

Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.

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One source for tracking various Category III AIFs performance is via PMS AIF WORLD. Here is the data from their latest performance newsletter -

You can browse their blog to check previously shared performance numbers for Category III AIFs.

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Few other sources to track Hedge funds performance are -

• Eurekahedge - Data is behind a paywall. But combined performance data for 15 Indian Long Short Equity Hedge Funds is accessible here (A news article about their November data)
• PMS Bazaar - Data can be accessed on the AIF Comparison page but requires free registration

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But I think these resources aren’t exhaustive in nature as True Beacon One, the Hedge Fund run by Nikhil (@nik), isn’t mentioned (or maybe, more exhaustive data is only available to paying subscribers of these services). Found a recent article that briefly mentions about True Beacon’s performance in comparison to the performance of other Cat-III AIFs reported by PMS AIF World -

Zerodha co-founder’s hedge fund clocks 40% return in first year of launch