A Fund of Funds (FoF) enables capitalists to make a solitary financial investment while providing accessibility to a varied profile throughout several safety and securities. It buys several shared funds, enabling capitalists to expand their profiles and disperse threats.
What is a Fund of Funds?
The Association of Mutual Funds in India (AMFI) specifies FoF as “a financial investment technique of holding a profile of various other mutual fund instead of spending straight in supplies, bonds or various other safety and securities”. A FoF primarily invests in the units of another mutual fund scheme. This type of investing is often referred to as multi-manager investment.
FoF allows investors to distribute risks by diversifying across multiple securities. The investments included under FoF are part of other mutual fund schemes or mutual fund houses. It is typically believed that FoFs are suited primarily to small investors who want exposure to different securities and those who do not have the expertise to choose a single asset class to invest in.
How does FoF work?
Similar to mutual funds, which trade in different securities, such as equity and debt instruments, on behalf of investors, FoF invests in other mutual funds. Depending on the investment strategy, the fund manager can invest in a single fund or funds of different fund houses.
Fund of Funds — Types
Asset allocation funds
Asset allocation funds include a set of diverse securities such as equities, commodities, and debt instruments.
Gold funds
Gold funds are a type of mutual fund that primarily trades in gold securities.
International fund of funds
These funds invest in stocks of companies listed outside of India, giving global exposure to an investor.
Multi-manager fund of funds
A multi-manager fund of funds diversifies investments by holding a portfolio of other mutual funds, each managed by a different, specialised fund manager.
ETF fund of funds
These funds constitute exchange-traded funds in its portfolio and are a popular investment tool in the country.
Disclaimer: This post is for educational objectives just and does not comprise monetary guidance; please speak with a competent monetary expert prior to making any kind of monetary choices.
