By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Investment SimplifiedInvestment Simplified
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • EPF
    • Popular Searches
    • EPFO Member Portal – Login, Registration
    • EPFO Establishment Search
    • Guide to Your EPFO Member Login
    • EPF Interest Rate
    • What Is UAN Activation?
  • PAN Card
    • Popular Searches
    • What is a PAN Card
    • NSDL PAN Card
    • UTI PAN
    • e-PAN Card
    • PAN Card Apply
  • Banking
    • Banks
      • Popular Searches
      • State Bank of India (SBI)
      • Bank of Baroda (BOB)
      • Canara Bank
      • Indian Bank
      • Bank of India (BOI)
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Enquiry by SMS, Missed Call, Netbanking
      • SBI Balance Enquiry
      • Union Bank of India Balance Enquiry Number
      • BOB Balance Enquiry
      • PNB Balance Check Number – Enquiry by SMS, Missed Call, Netbanking
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care – Missed Call and Toll Free Number
      • Bank of Maharashtra Customer Care
      • Punjab National Bank Customer Care Number – PNB Grievance Redressal
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS Form
      • Axis Bank RTGS Form
      • HDFC RTGS Form
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque – How to Write a Cancelled Cheque?
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in June 2023
      • Bank Holidays in July 2023
      • Bank Holidays in August 2023
      • Bank Holidays in September 2023
      • Bank Holidays in October 2023
    • Mobile Banking
      • Popular Searches
      • SBI Mobile Banking
      • HDFC Mobile Banking
      • Bank of Baroda Mobile Banking
      • Indian Bank Mobile Banking
      • Canara Bank Mobile Banking
    • Passbook
      • Popular Searches
      • SBI Passbook
      • Union Bank Passbook
      • BOB Passbook
      • HDFC Passbook
      • Axis Bank Passbook
    • Demand Draft
      • Popular Searches
      • Demand Draft Validity
      • Demand Draft Form
  • Savings Account
    • Popular Searches
    • What is a savings account
    • SBI Savings Account
    • Bank of Baroda Saving Account
    • Bank of Maharashtra Saving Account
    • Central Bank of India Saving Account
  • Insurance
    • General Insurance
    • Car Insurance
    • Travel Insurance
    • Pension & Retirement
  • About Us
  • Contact
Reading: Why Funds of Funds Might Be The Most Fruitful Investment Method for You
Share
Investment SimplifiedInvestment Simplified
Search
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • EPF
    • Popular Searches
    • EPFO Member Portal – Login, Registration
    • EPFO Establishment Search
    • Guide to Your EPFO Member Login
    • EPF Interest Rate
    • What Is UAN Activation?
  • PAN Card
    • Popular Searches
    • What is a PAN Card
    • NSDL PAN Card
    • UTI PAN
    • e-PAN Card
    • PAN Card Apply
  • Banking
    • Banks
      • Popular Searches
      • State Bank of India (SBI)
      • Bank of Baroda (BOB)
      • Canara Bank
      • Indian Bank
      • Bank of India (BOI)
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Enquiry by SMS, Missed Call, Netbanking
      • SBI Balance Enquiry
      • Union Bank of India Balance Enquiry Number
      • BOB Balance Enquiry
      • PNB Balance Check Number – Enquiry by SMS, Missed Call, Netbanking
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care – Missed Call and Toll Free Number
      • Bank of Maharashtra Customer Care
      • Punjab National Bank Customer Care Number – PNB Grievance Redressal
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS Form
      • Axis Bank RTGS Form
      • HDFC RTGS Form
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque – How to Write a Cancelled Cheque?
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in June 2023
      • Bank Holidays in July 2023
      • Bank Holidays in August 2023
      • Bank Holidays in September 2023
      • Bank Holidays in October 2023
    • Mobile Banking
      • Popular Searches
      • SBI Mobile Banking
      • HDFC Mobile Banking
      • Bank of Baroda Mobile Banking
      • Indian Bank Mobile Banking
      • Canara Bank Mobile Banking
    • Passbook
      • Popular Searches
      • SBI Passbook
      • Union Bank Passbook
      • BOB Passbook
      • HDFC Passbook
      • Axis Bank Passbook
    • Demand Draft
      • Popular Searches
      • Demand Draft Validity
      • Demand Draft Form
  • Savings Account
    • Popular Searches
    • What is a savings account
    • SBI Savings Account
    • Bank of Baroda Saving Account
    • Bank of Maharashtra Saving Account
    • Central Bank of India Saving Account
  • Insurance
    • General Insurance
    • Car Insurance
    • Travel Insurance
    • Pension & Retirement
  • About Us
  • Contact
Investment Simplified > Mutual Funds > Why Funds of Funds Might Be The Most Fruitful Investment Method for You
Mutual Funds

Why Funds of Funds Might Be The Most Fruitful Investment Method for You

Ashish Kumar
Last updated: 2022/12/22 at 11:13 AM
Ashish Kumar Published June 23, 2022 11 Min Read
Share
SHARE
What is Funds of Funds?Funds of Funds MeaningHow does it operate?What is the core nature of investing in Funds of Funds?What are the benefits of Fund of Funds Investing?Who really should put their money into a Fund of Funds?What are the types of Fund of Funds?Best Funds of Funds ListPros and ConsFAQs

Whenever it comes to investing your hard-earned money, a Funds of funds is a secure and wise decision and unquestionably the safest option. Diversification of your investment across numerous funds from various industries and rigorous professional management by skilled fund managers guarantees that your money is protected.

What is Funds of Funds?

A ‘Fund of Funds’ (FOF) is a financial strategy that includes managing a portfolio of other asset vehicles rather than directly investing in stocks, bonds, or other assets. Multi-manager investing is a term used to describe this sort of investment. These plans allow investors to spread their money among many funds, reducing risk. The units of other mutual fund schemes, either from the same or from different mutual fund firms, serve as the underlying investments.

Funds of Funds Meaning

The Fund of funds definition is as follows – it is a type of mutual fund that, rather than directly investing in stocks, securities, commodities, and bonds, invests in a variety of mutual funds. For example, when you simply invest in a mutual fund, it invests your funds directly in the marketplace.

On the other hand, when you invest in a Fund of funds, your money is invested in other mutual funds, which subsequently invest in the market.

Key Takeaways

  • Funds of funds are highly diversified funds that involve a lot of asset balancing.
  • They are managed and operated by professional technically-skilled hands.
  • Funds of funds involve international exposure too.
  • There are chances to be hit by almost over the market indices.
  • It requires proper thinking beforehand to invest in these types of funds.
  • There is a high return and high-risk exposure.

How does it operate?

If the portfolio manager’s primary goal is to generate the greatest possible returns, mutual funds with greater NAV are the best option, even if they come with a higher level of risk. If the primary goal is stability, however, low-risk instruments will be purchased using the pool of financial resources produced. Depending on the asset management firm’s discretion, these mutual funds can be utilised to invest in both local and overseas funds. This broadens the Fund of funds’ diversity.

What is the core nature of investing in Funds of Funds?

  • Diversification

A Fund of funds invests in a variety of top-performing mutual funds, each specialising in a different asset or area of the market. This entails securing benefits through diversity since the underlying portfolio variety optimises both returns and risks.

  • Professionally trained managers

Such portfolio managers assure high yields via complicated investment strategies using highly skilled personnel with years of expertise. Proper analysis and calculated market projections generated by such portfolio managers ensure high yields through sophisticated investment methods.

  • Resource needs are minimal.

A person with modest financial means can readily invest in the most profitable Fund of funds accessible. When selecting a Fund or funds to invest in, monthly investment options are also available.

What are the benefits of Fund of Funds Investing?

  • Tax economic

If you decide to restructure your portfolio, there will be no capital gain on this inside transaction. Consequently, if your Fund of funds is restructured to keep up a stated debt-to-equity ratio, there’ll be no capital gains tax.

  • Handling Comfort

With Funds of funds investing, you only have to worry about one NAV and folio. As a result, the more limited the funds that must be handled, the easier it is.

  • Qualified Services for Fund Management

Before contributing to individual investments, you may test the market with competently managed funds by investing in a portfolio of funds.

  • Portfolio Managers’ Trustworthiness

The legacies of the managers of a Fund of funds must be investigated and confirmed. You may stay assured that your investment is safe.

  • Limited-capital investors have an opportunity

Investors with modest funds can participate in varied underlying assets through a Fund of funds. Otherwise, such investors would find it different to gain individual access to these assets.

Who really should put their money into a Fund of Funds?

The fundamental goal of the best Funds of funds is to maximise profits while minimising risk by investing in a diverse portfolio. Individuals with a limited pool of financial resources that they can set aside for a long time can invest in a Mutual Fund like this. Because such funds’ portfolios contain a variety of Mutual Funds, they have access to high-value funds as well.

Investors with little resources and minimal liquidity requirements might consider investing in the market’s top Fund of funds. This allows them to make the most money with the least danger.

Small investors that do not want to incur bigger risks might choose a Fund of funds. Rebalancing investment funds can assist in mitigating risk. Furthermore, it is a good investment option for someone who just has a modest quantity of money to invest each month. Furthermore, individuals with a five-year or longer investment horizon might consider putting money into this fund.

What are the types of Fund of Funds?

  • Funds for asset allocation

These funds have a wide asset pool, including stock, debt instruments, precious metals, and other assets, which offer to earn large returns through the best-performing instrument while reducing risk, thanks to the portfolio’s reasonably stable assets.

  • Gold mutual funds

Gold funds invest in several mutual funds that specialise in trading gold securities, which contain a portfolio of mutual funds or even gold trading firms, depending on the asset management firm.

  • Fund of Funds International

The international Fund of funds focuses on mutual funds that operate in other countries, allowing investors to possibly earn better returns by investing in the country’s best-performing equities and bonds.

  • Fund of funds with several managers

This is the most prevalent sort of mutual fund accessible on the market and is made up of a variety of professionally managed Mutual Funds. Each has a particular portfolio focus and includes several portfolio managers, each of whom is responsible for a certain asset in the Mutual Fund.

What should you consider as an investor?

Before selecting to dedicate your assets to these mutual funds, you should have a thorough knowledge of several issues as an investor.

  • A top Fund of funds invests long-term, locking in your money for a prolonged period. Before selecting to invest in this sort of mutual fund, be sure your liquidity demands are met through other means.
  • Even though the risk element is reduced thanks to the best Fund of funds’ superior management and diversified investments, they are always exposed to market volatility.
  • The goal of a Fund of Funds is to make the most of a single, diversified investing strategy. As a result, you must consider your options. The fund’s advantages and disadvantages, select competent fund management and assess your risk appetite, transactional timeframes and tax consequences.

What are the five best Funds of Funds in India?

India’s Top 5 Funds of Funds
Fund of FundsReturns1 year3 year5 yearAditya Birla Sun Life Global Commodities Fund16.583.192.35Kotak Gold Fund-Regular Plan7.413.521.59SBI Gold Fund7.13.591.58HDFC Gold Fund6.583.651.82Axis Gold Fund5.791.890.09

Best Funds of Funds List

  • Aditya Birla Sun Life Gold Fund Growth
  • Kotak Asset Allocator Fund – FOF.
  • ICICI Prudential Advisor Series – Conservative Fund.
  • Nippon India Index Fund – Sensex Plan.
  • UTI Nifty Index Fund.
  • ICICI Prudential Nifty Index Fund.
  • IDFC Nifty Fund.

Pros and Cons

Pros

  • Tax advantage: You must pay capital gains taxes when you sell one of the mutual funds, i.e., equity to debt or vice versa to shift funds to another (for rebalancing).
  • Getting more for less: You don’t have to track numerous schemes because you own multiple asset classes in one. There is just one Net Asset Value (NAV) .
  • Professional Service: You can’t invest in multiple asset classes with solid expertise if you just have a limited comprehension of the market.
  • You can invest with a small amount of money: You can’t put this little money into stocks, gold, bonds, or anything else since it won’t make a difference.

Cons

  • Expense Ratio is high: FOF plans have a greater expenditure ratio than other types of schemes.
  • Over-diversification: The FOF scheme may hold the same equities across many schemes in some situations.
  • Inadequate Transparency: If FOF invests in various mutual funds, it may be difficult for investors to maintain track of each asset portfolio.
  • Reduced Returns: Funds in a Fund of funds are diversified, and the returns are likewise lowered due to being hit by higher risk.

Did you know

  • Investment in Funds of funds requires great intellectual analysis before starting investing in it.
  • With FOF, you require a professional service in which a reputable fund manager manages your portfolio.
  • Even with a tiny sum, FOF includes investing in all categories.
  • The expense ratio is the percentage of the total earnings that a fund house deducts before distributing it to you.

Words to remember

  • Asset balancing

It continual involvement in balancing the portfolio as per the market volatility and performance of instruments.

  • International limits

Fund of funds also comprises investments in international equity and debt instruments.

  • Risk return allocation

It involves the effective risk-return allocation to balance the NAV value and growth of the fund in both Bearish and Bullish scenarios.

  • Yield

It depicts the number of dividends a fund gives out each year concerning the NAV.

Conclusions

Fund of funds, according to experts, is best suited for smaller investors who want access to a variety of asset classes. Investing in a FOF provides professional wealth management services and knowledge to the investor while also enabling investors with limited funds to have access to diversified portfolios with various underlying assets.

FAQs

How might a Fund of Funds (FOF) assist with financial planning?

FOFs are a highly essential instrument of financial planning. They attain your goals through smart asset allocation and exclusively specialise in mixing FOFs to provide you with risk-return combinations that suit your requirements

How do Fund of funds (FOF) fees compare; are they greater or lower?

On numerous levels, there is concern that you may wind up paying twice the loan on FOFs. However, most FOFs are meant to keep your costs as low as possible. FOFs charge relatively minimal fees to be competitive

What are the fundamental characteristics of a Fund of funds?

The fact that highly qualified professional portfolio managers manage these mutual funds is a key feature that assures correct market predictions and reduces the risk of losing money.

What role does Fund of Funds (FOFs) play in risk diversification?

There are Funds of funds dedicated to commodities such as gold, silver, international stocks, and other asset classes that can let you engage in the commodity upcycle while also de-risking your portfolio risk, which is mostly equities-based.

What are tax consequences?

An investor pays tax on a Fund of funds only when the original amount is redeemed, and both short-term and long-term capital gains are subject to tax deductions based on the investor’s yearly income and investment time.

Read more about Equity Mutual Fund.

Share This Article
Facebook Twitter Whatsapp Whatsapp Email Copy Link Print
By Ashish Kumar
Ashish Kumar is a SEO content writing enthusiast and an avid blogger who closely follows the latest financial trends. He writes about various topics related to Insurance, Aadhaar, PAN, Banking and other financial products.
Previous Article nps vs ppf NPS Vs PPF: Differences & Similarities
Next Article Mutual fund returns Mutual Fund Returns: Key Points You Must Know
Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Popular Searches
  • What Is Mutual Fund
  • What Are Contra Funds
  • What Are Money Market Mutual Fund
  • How To Invest In SIP
  • Types Of Mutual Funds
  • SIP Vs Mutual Funds
  • ELSS Tax Saving
  • Flexi Cap Fund
  • What Is SIP
  • What Are Tax Saver Mutual Funds
  • Best Debt Mutual Fund
  • Mid Cap Mutual Funds
  • Best Mutual Funds
  • What Is A Liquid Fund
  • Large Cap Fund
  • Best Sip To Invest
  • Equity Mutual Fund Types
  • What Is Equity Mutual Fund
  • What Is Tax Saver Sip
  • What Is ELSS Fund

Social Media

Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

Recent Post

Top Financial Influencers
Top 15 Financial Influencers in India
Investment
Cheque
What is a Cheque – Types, Components, Uses, Advantages
Banking
IDFC Debit Card
IDFC Debit Card
Banking
Federal Bank Debit Card
Federal Bank Debit Card
Banking

You Might also Like

Section 208

Advance Tax- Section 208, Forms and FAQs

The Section 208 of the Income Tax Act, 1961 states that every…

Read More
ppf

What are the Benefit of Investing in PPF as retirement plan

In India, the moment we start earning, we are offered two customary…

Read More
UAN Number

UAN : Activation and How to Generate UAN

Do you have an EPF or PF account? If you’re working in…

Read More
Canara Bank Savings Account

Canara Bank Savings Account

Thinking of opening a Canara Bank savings account? If yes, then this…

Read More
IS logo 250px

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhaar
  • Mutual Funds
  • Banking
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy
Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhar
  • Mutual Funds
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy

Social Media

Copyright © 2023 Investment Simplified. All rights reserved.

Welcome Back!

Sign in to your account

Lost your password?