A run on the fund is when investors in a pooled investment such as a hedge fund suddenly and all at once request their money back via redemptions. Ultimately, a run on the fund can cause a hedge fund to shut down and go out of business.
How does fund of funds work?
A fund of funds (FOF) is a pooled fund that invests in other funds. FOFs usually invests in other hedge funds or mutual funds. The fund of funds (FOF) strategy aims to achieve broad diversification and minimal risk. Funds of funds tend to have higher expense ratios than regular mutual funds.
What does it mean to run a hedge fund?
In the investment world, "I run a hedge fund" has the same meaning as "I'm a consultant" in the rest of the business world. A hedge fund uses a range of investment techniques and invests in a wide array of assets to generate a higher return for a given level of risk than what's expected of normal investments.
How safe are mutual funds right now?
Mutual funds are largely a safe investment, seen as being a good way for investors to diversify with minimal risk. Due to rules and regulations, many funds may generate diluted returns, which could limit potential profits.
What happens if my mutual fund goes to zero?
In theory, a mutual fund could lose its entire value if all the investments in its portfolio dropped to zero, but such an event is unlikely. In most cases, investors are protected from fraud or other losses of capital, but not from a fund's poor performance or the risks assumed.
Do mutual funds ever close?
Mutual funds and hedge funds may choose to close to new investors for various reasons such as excessive inflows or to maintain exclusivity. Funds may also close to new investors due to poor performance when a fund is winding down.
What does closing a fund mean?
Closing a fund is one way to slow or stop the flow of new money that the fund's manager must put to work. By closing the fund, its management has stopped one way it can increase its assets, or become larger. Why would a fund's management want this? It's done to protect the fund's investors.Sep 5, 2019
What happens if a fund is liquidated?
Liquidation involves the sale of all of a fund's assets and the distribution of the proceeds to the fund shareholders. At best, it means shareholders are forced to sell at a time, not of their choosing. Most dead funds are merged into another in the fund family.
What happens if an index fund closes?
The liquidation of an ETF is similar to that of an investment company, except that the fund also notifies the exchange on which it trades, that trading will cease. The remaining shareholders would receive their money, most likely in the form of a check, for whatever amount was held in the ETF.
How do mutual fund companies get money to run the fund?
Mutual funds primarily make money through sales charges that work like commissions and by charging investors a percentage of assets under management (AUM). The Securities and Exchange Commission (SEC) requires a fund company to disclose shareholder fees and operating expenses in its fund prospectus.