How do alternative mutual funds compare to hedge funds?

Alternative mutual funds and hedge funds both use non-traditional strategies to generate returns, but they differ in terms of structure, regulation, liquidity, risk, and investor access. While alternative mutual funds are more accessible to retail investors and follow SEBI regulations, hedge funds are usually limited to high-net-worth individuals and operate with fewer restrictions, often involving higher risk.

1. What Are Alternative Mutual Funds?

Alternative mutual funds are a category of mutual funds that use advanced strategies beyond standard equity and debt investments. These include long-short equity, arbitrage, options, global exposure, and even commodities. Their primary goal is to generate returns irrespective of market direction and offer diversification to a traditional portfolio.

Features of Alternative Mutual Funds:

• SEBI-regulated
• Open to retail investors
• Daily liquidity (open-ended structure)
• Moderate to high risk
• Diversified across asset classes

2. What Are Hedge Funds?

Hedge funds are privately pooled investment vehicles that can use aggressive and flexible strategies like leverage, derivatives, short selling, and arbitrage. These funds aim for absolute returns and often invest in both traditional and alternative asset classes globally. However, they are not open to all investors and are subject to fewer regulatory restrictions.

Features of Hedge Funds:

• Not open to general public; limited to accredited investors
• Less regulated
• Can use leverage, shorting, and derivatives freely
• Higher risk and return potential
• Lock-in periods; limited liquidity

3. Key Differences Between Alternative Mutual Funds and Hedge Funds

Here’s a detailed comparison between alternative mutual funds and hedge funds based on multiple criteria:

Aspect	Alternative Mutual Funds	Hedge Funds
Regulation	Tightly regulated (SEBI)	Light regulation
Investor Access	Open to all investors	Only high-net-worth or institutional investors
Liquidity	Highly liquid (can exit any time)	Lock-in periods, limited liquidity
Risk Level	Moderate to high	High to very high
Fees	Expense ratio only (1%-2%)	2% management fee + 20% performance fee

4. Which Is Better for Indian Retail Investors?

For most Indian retail investors, alternative mutual funds are a better and safer option. They are regulated, more transparent, and easier to understand. You can also invest small amounts through SIPs, unlike hedge funds that require large ticket sizes and carry high risk.

Why Choose Alternative Mutual Funds?

• Low entry barrier (as low as ₹500 for SIPs)
• Regulated by SEBI
• Suitable for diversification
• No complex legal structure

5. How to Invest in Alternative Mutual Funds in India?

You can invest in alt mutual funds through any leading broker like Angel One. Here’s how:

1. Open a demat account with Angel One
2. Complete KYC online
3. Search for “Alternative” or “Hedge Fund” type funds
4. Start investing via SIP or lumpsum

Alternative mutual funds and hedge funds both aim to boost portfolio returns through advanced strategies, but they serve different investor segments. While hedge funds cater to high-net-worth individuals with higher risk appetite, alternative mutual funds offer a regulated, more accessible route for retail investors to tap into diversification and tactical investment strategies. If you’re looking for a middle ground between traditional mutual funds and hedge funds, alternative mutual funds might be the right fit for your portfolio.