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Hedge Funds

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With the Indian economy growing at 9% and the inbuilt sound stability in the financial system, investors from foreign shores are queuing to be a part of the Indian success story. Hedge funds are no exception and they are estimated to be investing in large amounts through the Foreign Institutional Investments route. The regulators like RBI and SEBI have taken a precautionary and watchful stand to the entry of these high leverage players which are known to add excessive volatility in the market. Thus far the participation of hedge funds has been fairly limited, largely because of the SEBI requirement to be registered for the use of Participatory-notes and the ceiling on the investment through the FII route

The paper starts off with a general tour on Hedge funds, the investment strategies employed by them, points of disparity with Mutual Funds, their emergence in India, the hedge funds functional in the country and the Impact on the Indian Capital Market. The study will highlight the strategies employed by the hedge funds, how they can be useful in the Indian context and what India needs to guard against.

The presentation tries to analyze the pros and cons of operation of hedge funds in the Indian capital markets and its associated effects on the economy as a whole. Also the analysis includes role of hedge funds in past historical events like Long Term Capital Management, Asian Crisis, Black Monday, so that we get a better idea about the importance and criticalities of hedge funds to function in an efficient manner.

Finally, after analyzing the pros and cons of participation of hedge funds in the Indian capital markets a conclusion is drawn about their likely impact.



Hedge funds have grown quickly globally over the past 10 years from 610 in 1990 up to almost 10,000 today. At the start of 2007, estimates suggest that hedge funds have assets of over US$1.4 trillion under their management. With general leverage levels of four to five –this...