A Fund of Funds (FoF) is a type of mutual fund that is completely different from our usual concept of mutual funds. The money of a Fund of Funds is not invested in a pool of securities but invests in units of other mutual funds.
A Fund of Funds is an excellent risk diversifier simply for the reason that the money is allocated across different funds which, in turn, pursue different asset classes.
“Fund of Funds are often used by small investors to gain access to the fruits of investing across a range of securities and asset classes,” remarked Nilanjan Day, director, Wishlist Capital and an investment strategist.
FoF are often classified into the following categories depending on their character:
Asset Allocator Funds
Asset allocator (also known as multi-asset funds) put their money in multiple asset categories such as equities, debt, and commodities such as gold.
These help diversify investments and reduce risk in any portfolio risk..
International FoF
These invest in international funds, which, in turn, invest in global companies. These help investors gain exposure to large MNCs without the hassles of opening a trading account with an intermediary abroad.
Thus global assets can be tapped for returns.
ETF-based FoF
ETF-based FOFs invest in baskets of ETFs (exchange traded funds). When one invests in these funds the money is spread over several ETFs. This also removes the need to have a trading account which is mandatory to invest directly in ETF.
Gold FoFs
Gold ETFs invest in gold which is 99.5% pure. One needs a demat account to invest in these ETFs. But if the investor routes his/her money through a Gold fund of funds, he/she can get the benefit of investing in Gold ETFs without any direct exposure to Gold ETF.
AMCs offering FoF
Some of the popular fund of funds are managed by asset management companies such as ICICI Prudential, Nippon India, Mirae Asset, Aditya Birla Sun Life and Tata Mutual Fund.
The number of fund of funds in India investing overseas stood at 55 on June 30, 2024. Between them, these funds had a net AUM of 25,887 crore on that date. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
