While both investment vehicles try to maximize gains and minimize risk for their clients, there are some significant differences between hedge funds and mutual funds. Mainly, mutual funds are limited to stocks, money market accounts, and bonds, though some exceptions can be made. This is why the market has such an impact on mutual funds. Meanwhile, Hedge Funds may invest in a variety of alternatives including futures, PIPE deals, real estate, art, even website domain names. This is why the market does not necessarily have an impact on hedge funds.
Anyone can invest in a mutual fund. In contrast, there are strict regulations as who can invest or even look into a hedge fund. Since hedge funds are more riskier than mutual funds, the Securities and Exchange Commission doesn’t want the average Joe to lose his retirement in one risky hedge fund.