Mutual funds and hedge funds both take in money from investors and invest it in stocks, bonds and other securities.

Anyone can buy shares in a mutual fund. The minimum investment is typically $500 to $5,000. Because they are open to the public, the Securities and Exchange Commission regulates and oversees mutual funds. They must publicly disclose detailed information about their performance, fees, portfolios and management. Some types of risky investments and trading strategies are prohibited. Investors can withdraw their money at any time. Investors typically pay annual fees ranging from less than 1 percent to 2 percent of assets.

Hedge funds are designed for wealthy, financially sophisticated investors. They are virtually unregulated, although they must not engage in securities fraud. The minimum investment is usually $1 million or more. Hedge funds cannot advertise and can only accept certain types of investors: Individuals must have at least $1 million in net worth (including home equity) or $200,000 in annual income. Married couples must have at least $1 million in net worth or $300,000 in annual income. (The SEC is considering raising these minimums.)

Hedge funds can follow almost any type of investment strategy. Many are very aggressive, but some are quite conservative. Hedge funds usually tell their investors what they’re up to but don’t have to disclose anything publicly. Most hedge funds let investors withdraw money only once per month or once a year. Hedge fund managers usually collect 1 to 2 percent of assets per year plus 20 percent of any profits.