Answer:
Hedge funds and mutual funds are both managed portfolios in which the securities are picked by a fund manager. The securities that are picked are the ones that the manager feels will perform well and are grouped into a single portfolio. Portions of these funds are then sold to investors who are allowed to participate in the gains and losses of the holdings.
However hedge funds are more aggressively managed as compared to mutual funds. They can take speculative positions in derivative securities such as options and can also short sell stocks which will increase the leverage of the fund. This means that hedge funds can also make money in an economic downturn. Mutual funds in comparison cannot take such leveraged positions and do not involve the same level of risk.
Hedge funds also differ from mutual funds in their availability. They are only available to a specific group of investors with high net worth while mutual funds are available to any investors with even minimal amounts of money.
There are a number of investment companies in India that invest in hedge funds as well as mutual funds of which Reliance mutual funds is a very good option.