mutual funds and hedge funds are managed portfolios which gives advantage to investors is that they get instant diversification and professional management of their money.
Hedge funds are managed much more aggressively than their mutual fund counterparts. They are able to take speculative positions in derivative securities such as options and have the ability to short sell stocks. This will typically increase the leverage - and thus the risk - of the fund. This also means that it's possible for hedge funds to make money when the market is falling. Mutual funds, on the other hand, are not permitted to take these highly leveraged positions and are typically safer as a result.
Hedge funds are only available to a specific group of sophisticated investors with high net worth whereas mutual funds, which are very easy to purchase with minimal amounts of money.