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What are Fund of Funds? :FOF Meaning, Types & Advantages | INDmoney

What are Fund of Funds? :FOF Meaning, Types & Advantages | INDmoney

Last updated: 19 Nov, 2021 | 05:48 am

What are Fund of Funds? :FOF Meaning, Types & Advantages | INDmoney

Fund of funds (FOF) or multi-manager scheme lets an investor invest in different FOF mutual funds. Unlike directly investing in stocks and bonds, an investor can hold a portfolio of other investment funds. Fund of funds is comparatively diversified, less risky and volatile, and exposes an investor to assets that are beyond them.

A fund of funds can be classified as 'fettered' or 'investments only in funds managed by FOF's investment company' and 'unfettered' or 'investments made in external funds managed by external managers. FOF offers investors an opportunity to build a portfolio that suits their risk profile and financial goals. With FOF, investors can take advantage of the diversification that it comes with since they invested in many fund categories under FOF.

How Does Fund of Funds Work?

Portfolio managers utilise their skills and expertise to distinguish the best fund of funds in India to put resources into their past performance and overall productivity. Contingent upon the skill of a portfolio manager, a FOF investment has the capability of procuring a higher-than-normal return. The fund of funds (FOF) plans to accomplish diversification and suitable resource distribution with interests in various fund classifications wrapped into one portfolio.

There are various types of FOFs, with each kind acting on an alternate investment scheme. An FOF might be organised as a shared asset, a private value reserve, or an investment trust. An FOF might be fettered, which means it just puts resources into portfolios overseen by one investment organisation, or it could be free, letting it put resources into external assets managed by different managers from other organisations.

Types of Fund of Funds

Funds of funds help investors meet a variety of their speculation styles and objectives. In each kind, you might see fettered and unfettered assets:

Resource Allocation Funds

Resource allocation funds are very common as they put resources into a varied class of assets. These assets range from equity funds, debt funds, gold, other metals, and such commodities.

Gold Funds

These assets put resources into different types of gold, such as tangible gold, and also into gold mining organisations' supplies.

International Fund of Funds

Foreign FOFs are investments in common assets containing bonds and shares of worldwide organisations.

Multi-Supervisor Fund of Funds

A multi-supervisor FOF comprises many expertly overseen assets yet is a solitary portfolio.

Advantages of Putting Resources Into Fund of Funds

  • Funds of funds can be great for investors who need not keep a constant check on sectoral performances, market adjustments, and portfolio management. A single investment today in a target date reserve, for instance, can be possibly held until you retire or even later.
  • Funds of funds can be an ideal choice for those with the least knowledge or those who want to pick individual assets to limit their risks. The right funds will give an appropriately diversified, risk fitting and all-around enhanced technique that can uphold a very much planned financial strategy.
  • A person with restricted financial assets can undoubtedly put resources into the top fund of funds accessible to procure higher benefits. Month to month venture plans can likewise profit while picking fund of funds.
  • If you wish to rebalance your resources, no charge will be levied on capital gains for this exchange. Along these lines, when your fund of funds is rebalanced to keep a said portion among allocation, there will be no tax implication on capital gains.
  • Fund of funds targets many best performing Mutual Funds altogether, each working in a specific resource or area of an asset. This guarantee gains through diversification, as the two returns and risks are streamlined because of hidden portfolio assortment.

Who Should Consider Investing in a Fund of Funds?

Fund of funds' greatest advantage lies in their expanded growth strategies. As an educated financial investor, you should gauge the risks and benefits of this plan before settling on any choice. Select an accomplished asset combination and know your risk appetite, value-based timelines, and assessment suggestions, in addition to many other things.

Things to Consider Before Investing in Fund of Funds

  • Top fund of funds works in the long-term. Hence, locking your venture for an extensive period is advisable. You should ensure your liquidity needs are fulfilled through other investment sources before deciding to put your resources into this kind of fund of funds mutual fund.
  • Even though the risk is limited, there is still some instability because of the market uncertainties.
  • Fund of funds incurs charges very much like some other common asset plans. Be that as it may, in contrast to mutual funds, there is an additional expense included. Aside from the overall administration and regulatory charges, there is an additional cost. However, the proportion of charges being only 1%, as a financial investor, you will still have to pay this sum on each asset that the FOF possesses.
  • Transparency can be an issue in the case of FOFs. Here, most portfolio managers guarantee to have a mystery to their investment technique. Their trade secret is rarely disclosed, which means you probably won't have a clue about the basis on which your money was put into.

Conclusion

The achievement of FOF funds relies upon the capacity of the fund supervisor to pick only those that produce a high rate of return. If you're keen on investigating the various fund of funds accessible, INDmoney's aptitude and investment research tools can assist you with recognising and afterwards analysing your choices.

With the help of AI-driven investment advisory based on hundreds of data points, tax planning, zero-commission fee and access to a basket of top stocks based on different types, volatility levels and strategies simply help amateur investors in an organised manner.

FAQs

Why should I invest in FOF?

A: Fund of funds is known for higher returns with significantly less amount of investment and risks involved. Hence, it is advisable to invest in the best fund of funds.

How to invest in FOF?

A: Investing in FOF is very straightforward. However, it requires professional help to do so. Hence, once you decide to invest in a FOF fund, look for expert portfolio managers and begin your investment journey.

Do I need to have the market knowledge to invest in top FOFs?

A: No, you don't need any prior market knowledge to start investing in the top FOFs. Simply begin your journey with INDmoney today!

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