A Fund of Fund means a mutual fund scheme that invests in other mutual fund schemes. The fund manager invests in other mutual funds instead of directly investing in equities or bonds. The portfolio is catered for investors with different risk profiles and financial goals. The Fund of Funds offers such benefits that the investors gain from the diversification as a result of investing in various fund categories.
The most sought-after Fund of Funds in India are:
- Multi Asset allocation fund of funds are mutual funds that invest in and even other asset classes such as gold, equity, debt, and other commodities.
- Gold Fund of Funds are funds that have underlying investments in Gold ETFs
- International funds are investments in mutual funds that comprise bonds and shares of global companies.
Investing in a fund of funds is a smart choice if one looks into a few aspects.
- An investor’s investment is diversified across several funds from various sectors..
- This investment strategy of the fund of funds in India can helps one to get exposure in some of the top-performing mutual funds even with a limited investment budget.
- In case of Fund of Funds, taxation levied is payable by an investor, only when the fund is redeemed. However, both short-term and long-term capital gains are subject to tax deductions in India, depending upon the annual income of the investor and the time of investment.
- There is no taxation on fund of funds scheme if Fund Manager rebalances the scheme portfolio.
- The basic meaning of Fund of Funds is that the mutual fund invests in many funds that further invest in several securities. It is quite possible that the Fund of Funds, will own the same stocks and securities through different funds. This reduces the potential for diversification.
- The Fund of Fund expense includes expenses of the underlying funds owned by the Fund of Funds.
Who should Invest?
- Investors who wish to invest long term may avail of the fund of funds benefits by investing in such funds.
- The main aim of the fund of funds in India isto augment returns by investing in a diverse portfolio thus trying to minimise the overall risk.
- Individuals with limited financial resources and low liquidity needs which they can spare for a more extended period of time can choose avail of the benefits of a fund of funds. Since such funds invest in different types of mutual funds, the investor also gains access to high-value funds.
- Also new investors with limited knowledge looking for a long-term and diversified investment option can invest in such funds.
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