Hedge Fund is a pooled investment vehicle that combines funds from multiple investors to pursue high returns through diverse and often sophisticated investment strategies. Managed by professional fund managers, hedge funds use techniques such as long and short positions, leverage, derivatives, and arbitrage to generate profits irrespective of market conditions.

Unlike mutual funds, hedge funds are typically open only to institutional investors and high-net-worth individuals due to their higher risk profile and complex strategies. These funds are less regulated than traditional investment products, allowing managers greater flexibility in choosing asset classes ó including equities, bonds, commodities, currencies, and derivatives ó to meet performance objectives.

The primary goal of a hedge fund is not just to outperform the market but to deliver absolute returns ó positive performance even when markets decline. To achieve this, hedge fund managers often employ hedging techniques that offset potential losses from one position with gains from another. For instance, a manager may go long on undervalued stocks while shorting overvalued ones to profit from price differentials.

However, hedge funds come with significant risks, including market risk, leverage risk, and liquidity risk. Since these funds are not bound by the same disclosure requirements as retail investment vehicles, transparency can also be limited. In India, hedge funds are regulated under SEBIís Alternative Investment Funds (AIF) Regulations, Category III.

In summary, a hedge fund is an advanced investment vehicle designed for experienced investors seeking higher returns through active, flexible, and high-risk strategies. While they can offer strong profit potential, they require careful assessment of risk, strategy, and fund manager expertise before participation.