Hedge Funds

"Hedge" means to manage risk

Hedge Fund- The appellation "Absolute Return Fund"

A pooled investment fund, usually a private partnership, that seeks to maximize absolute returns using a broad range of strategies, including unconventional and illi uid investments!

"ho typically invests in hedge funds# $ %sually defined as "Accredited &nvestors", various institutions, corporate treasuries, endo'ments, fund of funds, family offices, private banks and pensions invest in hedge funds!

Hedge funds definition says these funds are meant to hedge the investment through various techni ues from the potential fluctuations in terms of losses in the markets! (asically a safe investment method!

Mutual Funds

)utual fund is one of the investment instruments, 'here you provide your money to a fund house and authorise them to invest and manage your money! &n return, the fund house pays back through dividends*bonus! This is similar to Fixed deposit, 'here bank pay you interest for the fixed deposit!

Difference between Hedge funds & Mutual funds

1. Hedge funds are only available to a specific group of sophisticated investors 'ith high net 'orth!
&n term the investors are called +accredited investors", 2. This isn,t the case for mutual funds, 'hich are very easy to purchase 'ith minimal amounts of money! Any common man can invest in )utual funds General questions in accounts

1.

edger !alance" The ledger balance of an account is the actual balance at any point in time and is the aggregate of all debits and credits, including the value of cheques in course of settlement, which have been entered against that account.

2. #rial balance " trial balance is nothing but the debit balance must be equal

to credit balance.

3. Types of Hedge funds: Hedge funds come in many flavors, including:

Equity market neutral funds, which offset long positions in stocks with equal short positions in order to eliminate systematic market exposure (beta). Convertible arbitrage funds attempt to exploit anomalies between the price of a stock and the prices of instruments convertible into the stock. ixed income arbitrage tries to predict changes in credit ratings or the term structure of interest rates. !ypically these funds strive for market"neutral positions by offsetting long and short positions. #istressed securities funds exploit the fact that many investors lack the desire to participate in the bankruptcy process or the ability to identify their value. $erger arbitrage captures any spread between the price of a company and the price that a planned acquiror has offered. %edged equity funds hold both long and short positions but typically remain net long. &lobal macro funds exploit systematic market moves in currencies, futures and option contracts. Emerging markets funds focus on less mature investment markets. unds of funds invest in a number of other hedge funds, offering diversification at the cost of double fees.

$. %ontingent iabilit&"

contingental liability may or may not be liability to the company. !t is mandatory to show in "alance #heet. $%:& $%gratia payable to 'or(ers. #ometimes company has to pay sometimes may not pay.

'. Golden rules of accounting" REAL ACCOUNTS NOMINAL ACCOUNTS ERSONAL ACCOUNTS DEBIT WHAT COMES IN CREDIT WHAT GOES OUT DEBIT ALL EX ENSES AND LOSSES CREDIT ALL INCOMES AND RE!ENUES DEBIT THE RECEI!ER CREDIT THE GI!ER

(. De)reciation"

non cash e%pense that reduces the value of an asset as a result of wear and tea, age, or obsolescence. )ost assets lose their value over time *in other words, they depreciate+, and must be replaced once the end of their useful life is reached. There are several accounting method that are used in order to write&off an asset,s depreciation cost over the period of its useful life. "ecause it is a non cash e%pense, depreciation lowers the company-s reported earnings while increasing free cash flow.

*. %+,# -%%+./#0/G

type of accounting process that aims to capture a company,s costs of production by assessing the input costs of each step of production as well as fi%ed costs such as depreciation of capital equipment. .ost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance.

Equities

$quity *finance+, the value of an ownership interest in property, including shareholders, equity in a business #toc(, the generic term for common equity securities are called stoc(/ Home equity, the difference between the fair mar(et value and unpaid mortgage balance on a home 0rivate equity, stoc( in a privately held company $quity in income of affiliates, an accounting term referring to the consolidated or unconsolidated ownership in affiliate companies