What is the distinction between a hedge fund, an arbitrage fund ?
Arbitrage Fund: An arbitrage fund is a mutual fund or investing strategy that aims to profit on price differences in the same asset across markets or between similar assets. These funds often adopt low-risk tactics such as purchasing the undervalued asset and simultaneously selling the inflated asset to capitalise on the price differential. They seek stable, albeit lower-than-average, returns regardless of market conditions. Arbitrage funds are considered low-risk investments because they are based on price differentials rather than market direction.
Hedge funds : are financial entities that use a variety of methods to create profits for their investors. They offer greater flexibility than standard mutual funds and can benefit through leverage, short selling, and derivatives. Hedge funds frequently have larger risk and return potential than arbitrage funds. They seek to generate positive returns regardless of market conditions and frequently employ a mix of long and short bets across many asset classes.