10.

Difference between MF, Hedge & FIIs

Hedge funds are managed much more aggressively than their mutual fund counterparts. They are able to take speculative positions in derivative securities such as options and have the ability to short sell stocks. This will typically increase the leverage - and thus the risk - of the fund. This also means that it's possible for hedge funds to make money when the market is falling. Mutual funds, on the other hand, are not permitted to take these highly leveraged positions and are typically safer as a result. Another key difference between these two types of funds is their availability. Hedge funds are only available to a specific group of sophisticated investors with high net worth. The U.S. government deems them as "accredited investors", and the criteria for becoming one are lengthy and restrictive. This isn't the case for mutual funds, which are very easy to purchase with minimal amounts of money.

Whereas an FII can be an investor or investment fund that is from or registered in a country outside of the
one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds

The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies.

Identifying the Asset Class for Investment:

The foundation of asset-class investing is the Nobel Prize winning research of Harry Markowitz and William Sharpe, called Modern Portfolio Theory. Using statistical analysis, Markowitz and Sharpe demonstrated that the majority (about 94%) of the returns from investments depend on asset class selection, not stock selection and market timing. If this is true, passive investors can get at least as good results as active investors. "Asset-class investing principles show us no one can consistently hope to beat the market." Passive investors buy and hold asset classes. According to Markowitz and Sharpe, the investment markets tend to be efficient. The market compensates for the expected return of an individual stock by adjusting the stock price so the stock will tend to have a similar return as other stocks in its asset class. Instead of selecting individual stocks, investors may get a similar return with less risk by buying an asset class investment, such as an Standard and Poors 500 index mutual fund. Some of the asset classes that Mr. Martin identifies are short, long and intermediated fixed-income (bonds) using index bond funds, small-cap stocks (Russell 2000 index), large-cap stocks (Standard and Poors 500 index), and international funds.

In addition to managing the return side of the equation, the investor should focus on managing risk. Risk can be managed by diversifying asset classes. Some asset classes tend to fluctuate in the opposite direction from others -- for example, when stock prices rise, bond prices tend to decline. By constructing a blended portfolio of different asset classes, the risk or volatility can be statistically estimated. There is a trade off between risk and return, but through this diversification strategy, risk can be significantly reduced while earning improved returns. Mr. Martin also points out that studies have shown that investors significantly improve their returns by working with an investment advisor. The process Mr. Martin uses in working with clients consists of these steps: 1) Identify financial goals; 2) Determine risk tolerance and reward objectives; 3) Identify blend of asset classes to achieve goals; 4) Invest funds and monitor performance; 5) Optimize and re-balance as warranted. Asset-class investing is a disciplined, consistent, long-term approach that is more suitable for planning and reaching financial goals than the speculative "picking and timing" approach. A speculator could alternatively go to a race track and bet on a horse instead of betting on a company's stock in the stock market.