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