Hedge funds can be a costly investment for a number of reasons:
- There are rules about minimum investments for hedge funds. In Ontario, you must have $150,000 to invest in the fund, or be an accredited investor. This rule exists because if you can afford to buy a hedge fund, you can likely afford the possible losses. You can also afford to get expert advice, and good advice is key to understanding the potentially higher risk of investing in a hedge fund.
- Hedge fund managers use active or even aggressive strategies that require them to do a lot of research and ongoing monitoring. This work adds extra costs to the fund.
- Hedge fund managers also tend to trade more often, resulting in higher transaction fees. The hedge fund will pass these costs on to investors.
Here is a short summary of the costs and taxes you can expect to pay.
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