Essentials of Asset Management: Hedge Funds and Mutual Funds

Management Accounting: The Essentials of Cost Accounting

Organisations all across the world are concerned about asset management. It includes developing and managing every aspect of an asset systematically. Assets are significant because they drive business. Businesses nowadays are heavily dependent on their physical assets to sustain effectively in the competition. 

The process of asset management helps businesses derive value from their assets and achieve their organisational goals. Companies have practised asset management for a very long time, but it is an ever-evolving domain. It is crucial to keep at par with the changes and adapt to them. 

This blog will discuss the essentials of asset management in detail. If you want to get trained for the industry and learn about professionals, a credible investment banking course help you gain the knowledge. 

What is asset management? 

It can be defined as a process of planning and controlling the acquisitions, operations, maintenance, renewal and disposal of organisational assets. Asset management is used for improving the delivery potential of assets and minimising the risks and costs involved. 

Proper development and effective maintenance of people, systems and processes ensures a positive enhancement of capital over the asset lifecycle. 

Best practices for effective asset management 

Developing an effective asset management process can help businesses monitor and manage their assets in an organised manner. With an effective strategy in place, organisations are able to improve the efficiency and productivity of an investment. 

The main parts of an effective asset management process are: 

  1. Creating an asset register: a list of the available assets.
  2. Identify the asset conditions and rating system. 
  3. Tracking asset depreciation at fixed time intervals. 
  4. Deciding an asset's value and its cost of replacement. 
  5. Move from reactive to predictive asset maintenance. 
  6. Ensure database integrity by focusing on change management. 
  7. Automate jobs like asset reporting, data collection, and more to eliminate paperwork. 

You can learn in detail about the best practices for asset management from a credible investment banking course. 

What are hedge funds? 

Hedge funds collect money from various investors and invest in securities and different investments to get positive returns. It is a limited partnership of private investors. Their money is managed by professional fund managers who use a number of strategies, including trading or leveraging non-traditional assets to gain above-average investment returns. 

Hedge funds are limited to wealthy investors who are able to afford the high fees and risks of hedge investing. These funds charge a much higher fee in comparison to conventional investment funds. An investor investing in hedge funds is known as an accredited investor. 

Types of Hedge Funds 

These funds target selected investors and pools of security that are primed for making gains. Some common types of hedge funds are: 

  • Global macro hedge funds: These actively managed funds try to profit from board market swings caused by political or economic events. 
  • Relative value hedge funds: These hedge funds target the temporary differences in prices of related security, taking advantage of spread or price insufficiencies. 
  • Equity hedge fund: These funds can either be global or specific to one country. This type invests in lucrative stocks when hedging against downturns in equity markets by shorting stock indices or overvalued stocks. 
  • Activist hedge fund: This fund aims to invest in organisations and take actions that boost stock prices. This may include demands that companies cut down costs, change the board of directors or restructure assets. 

What are mutual funds? 

It is an investment option where the money collected from many people is pooled together to buy a number of bonds, stocks, or other securities. These combined holdings of mutual funds are called its portfolio. Investors purchase shares in mutual funds, each share representing an investor's ownership and income those shares generate.

Money managers are responsible for managing this mix. They offer people a portfolio structured to match the investment objectives as given in the fund's prospects. 

Types of mutual funds 

Mutual funds can be classified according to the asset class, structure, and investment objective. 

Based on asset class 

This classification is done on the basis of the asset in which a mutual fund is investing. These funds are: 

  • Equity funds: These funds invest in stocks or equity and related instruments. These have the highest return potential but also pose the highest level of risk. This is ideal for investors who have some experience in investing. 
  • Debt funds: These funds invest money in debt instruments like company debentures, government bonds and different securities delivering fixed income. 
  • Hybrid funds: These funds serve as a bridge between equity funds and debt funds. Investors find an optimum mix between bonds and stocks; the ratio can either be fixed or variable. 

Based on investment objective:

Every mutual fund has a specific investment objective - some aim to help increase the capital, some save tax and many more. Some of these are: 

  • Growth funds: These are equity funds whose primary goal is to grow the capital of the business in the long run. 
  • Liquid funds: These funds invest in instruments having short to very short maturities (not above 91 days) to ensure liquidity. 
  • Income funds: These funds primarily invest in bonds and debentures having fixed maturity, which offers the investor a regular source of income. 

Based on structure 

Mutual funds can also be classified based on their structure. These bonds are: 

  • Open-ended funds: These funds are bought and sold according to the current net asset value of the fund. It can be purchased or sold throughout the year. 
  • Close-ended funds: These funds can only be bought during the New Fund Offer (NFO) period. These funds are also classified as stock exchanges; however, liquidity is usually very low. 
  • Interval funds: These funds are a combination of open-ended and close-ended funds. The fund house opens the funds to be bought or sold. 

Hedge funds vs. mutual funds 

Hedge funds and mutual funds have quite a few differences between them. If you want to build a career in banking, you must have an understanding of the difference between these two. Some of the differences have been listed below: 

Parameter  Hedge funds  Mutual funds 
Investment objective The goal is to achieve absolute market returns irrespective of market movements.  The goal is to produce relative returns higher than the market. 
Liquidity  Generally offer monthly, yearly or quarterly liquidity. It might impose a lockup period.  Generally, there are daily or weekly dealings. 
Minimum investment requirements  Several are private funds that have higher minimum investment requirements.  Mainly public, having minimum investment requirements. 


The primary goal of asset management is to maximise the value of an investment portfolio with time, along with maintaining a proper level of risk. Asset management has a number of benefits, such as helping repair, rehabilitate, and replace assets efficiently and increasing the lifespan of an asset. 

If you want to make a career in banking, you must understand the concepts of asset management, hedge funds, mutual funds and their strategies. Check out the Certified Investment Banking Operations Professional course by Imarticus. This investment banking course is ideal for professionals with at least three years of work experience.Enrol with Imarticus today to learn from experienced professionals. 

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