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Interval funds do not use leverage as a major investment strategy. Instead the managers of these funds look for strong investment opportunities with a great deal of long term potential. For the average investor that doesn’t want to take a risk on their life savings, interval funds are a much better choice.

Contrasting the Fee Structures of Hedge Funds and Interval Funds

The structures of fees of each are another significant difference between interval funds and hedge funds. Hedge funds commonly have what’s known as a 2 and 20 fee structure. The fund manager receives 2% of the assets of the fund each year as well as 20% of the profits. Yes, these fees are as high as they sound. Investors are willing to pay these high fees because of the large returns they can realize from a well-managed hedge fund. High risk in this case can result in high rewards.

Interval funds can also have high fees when compared to open end mutual funds, but not anything like a hedge fund. On average, these funds charge their investors between 2 and 4% annually and require you to pay a sales charge when you sell.

Interval Funds are Lower Risk

Is one fund better than the other? It really comes down to what you’re trying to achieve. A relatively wealthy investor who’s not afraid of a little risk can do very well investing in hedge funds. Interval funds offer more modest returns, but are open to just about anyone and are lower-risk.