Thursday, April 03, 2008

Investing in hedge funds

Hi Mr Tan,

Hope to seek your advice on my queries:
1) What is a hedge fund?
2) There are many investment portfolios offered by banks, are any of these considered as hedge fund?
3) Can you give an example of a hedge fund?
4) Is it safe to buy investment portfolios offered by banks such as UOB, OCBC?
5) Is it better off buying a long term investment portfolio offered by banks or is it better off buying company's shares directly from a broker? What's your advise? Note that I'm not one person who market watch.

I suggest that you search for "Hedge Funds" in Google. You will come across several references in the internet. You can read the articles on hedge funds there.

If you are picking a unit trust offered by a bank, you should look at the initial spread, the annual expense ratio and other factors. Most of these funds have high charges that reduce the return on your investments.

You should avoid investing in an investment that you are not familiar, such as a hedge fund. There are many types of hedge funds. They take money from the investors and borrow additional money (i.e. leveraged) to make risky investments. Many hedge funds performed badly during the past year, as their investments lost money.

I usually advice people to buy a low cost diversified fund, such as the STI ETF, as a long term investment. Read this FAQ:

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