What is the difference between hedged and unhedged funds
What is the difference between hedged and unhedged funds?

Hedged funds and unhedged funds are investment strategies used by fund managers to generate returns for investors. The main difference between the two lies in how they manage the exchange rate risk associated with investing in foreign currencies.

1. Hedged Funds:

Hedged funds aim to protect investors from currency fluctuations by using financial instruments like futures, options, or swaps to offset potential losses from changes in exchange rates. This is known as currency hedging. The goal is to generate returns that are more stable and less volatile than those of unhedged funds.

Hedged funds may invest in a variety of assets, including equities, bonds, commodities, and real estate, both domestically and internationally. However, their focus is on managing currency risk to ensure that the returns are not significantly impacted by exchange rate movements.

2. Unhedged Funds:

Unhedged funds, also known as offshore or global funds, do not use any currency hedging strategies. Instead, they invest directly in foreign securities and allow the exchange rate fluctuations to affect the returns. This means that if the currency of the country where the investments are made appreciates against the investor's home currency, the returns will be higher. Conversely, if the currency depreciates, the returns will be lower.

Unhedged funds are generally more risky than hed
 Hedged and unhedged funds refer to different strategies used in managing investment funds, particularly in relation to foreign exchange risk.

A hedged fund is a type of investment fund that uses financial instruments such as futures, options, and forwards to offset potential losses that may arise from fluctuations in currency exchange rates. The goal of a hedged fund is to reduce the impact of foreign exchange rate movements on the value of its investments, thereby providing a more stable return for investors. By hedging against currency fluctuations, a hedged fund aims to minimize the risk of losses due to changes in exchange rates, but it may also limit the potential for gains.

On the other hand, an unhedged fund is a type of investment fund that does not use financial instruments to offset potential losses from currency fluctuations. Instead, an unhedged fund takes on the full risk of changes in exchange rates, which can result in both losses and gains. An unhedged fund may offer higher potential returns than a hedged fund if the currency movements are favorable, but it also carries a higher level of risk.

In summary, the main difference between hedged and unhedged funds is the way they manage foreign exchange risk. Hedged funds use financial instruments to reduce the impact of currency fluctuations, while unhedged funds take on the full risk of changes in exchange rates. Investors should consider their risk tolerance and investment goals when deciding between hedged and unhed