Fund of funds (FoF) is a mutual fund invests in other mutual funds of the same fund house or other fund houses. Funds may be equity funds or debt funds as per the nature of fund of funds. The investor will get the benefit of all these funds by investing in a single fund of funds. It is a collection of various mutual funds.
The fund manager and team of fund of funds evaluate each fund before investing in a particular fund. As per the objectives of the fund of fund the team will decide the nature of funds invested in.
Advantages of Fund of funds
The main advantage of fund of funds is that it reduces the difficulties of selecting a number of funds and multiple investments.
The investor can avoid paying capital gain tax while transacting various funds as the transactions done by the fund of funds.
The investor should not verify the performance of various funds. He should check the performance of only one fund of funds.
The investor can get benefit from a group of mutual funds with the minimum investment of one mutual fund.
The experienced fund manager and team reduce the risk of wrong selection of funds.
Fund of fund is a one stop solution for all your investment needs.
Fund of fund is suitable for the investors with various risk profiles; it is available for equity, debt or commodities.
All research and analysis done by the fund house and the investor is free from all such tasks.
Disadvantages of Fund of funds
The investor has no any control in choosing mutual funds in fund of funds. The fund manager can change over to various funds without the permission of investor.
The fund of funds consider as a debt fund even if investing in equity funds and the dividend distribution tax and capital gain tax is payable as per the rules.
The expenses of fund of fund is high than other mutual funds. It bears the expenses of all mutual funds invested in.
The investor has no any choice for selecting funds under fund of funds.
Fund of funds also have the risk of selecting bad funds and the bad performance of other mutual funds invested by fund of funds affect the performance of fund of funds.
A Fund of fund bears all demerits of funds invested by the fund.
The market impact also reflects the performance of fund of funds.
Even if you should not monitor the performance of different funds, you should monitor the performance of fund of funds and if the performance is not favorable, you can withdraw your money.
The abovementioned disadvantages are there for all mutual funds. Fund of fund reducing a lot of demerits of mutual funds and a busy investor can trust fund of funds more than other mutual funds.
Fund of Funds to simplify your investment process
Quantum Equity Fund of Funds, a good Mutual Fund
Fund of Funds (FOF) is the best option for Mutual fund investors.
Advantages of investing in mutual funds