A mutual fund scheme that invests in other mutual fund schemes is referred to as a fund of funds. Instead of investing directly, the fund manager invests in other mutual funds.
A mutual fund scheme that invests in other mutual fund schemes is referred to as a fund of funds. Instead of investing directly in stocks or bonds, the fund management invests in other mutual funds. The portfolio is designed to accommodate investors with a range of risk appetites and monetary objectives. By investing in several fund categories, the Fund of Funds provides benefits that allow investors to profit from diversification.
The most popular Indian Fund of Funds are:
Mutual funds that invest in multiple asset classes, including gold, stock, debt, and other commodities, are known as multi asset allocation funds.
Gold ETFs are the underlying investments in funds known as Gold Fund of Funds.
Bonds and stock from international corporations are included in mutual funds that invest in international securities.
If one considers a few factors, investing in a fund of funds is a wise choice.
Advantages
An investor’s investment is spread over a number of funds from different industries.
Even with a little investment budget, this fund of funds investment approach in India can help one gain exposure to some of the top-performing mutual funds.
When it comes to Fund of Funds, investors are only responsible for paying taxes when the fund is redeemed. However, depending on the investor’s annual income and the time of investment, both short-term and long-term capital gains are liable to tax deductions in India.
If the fund manager rebalances the portfolio of the fund of funds plan, there is no taxation on the scheme.
Disadvantages
The fundamental idea behind a fund of funds is that a mutual fund invests in numerous other funds, which then invest in a variety of securities. The possibility exists that the Fund of Funds will acquire the identical equities and securities from other funds. As a result, there is less room for diversification.
The underlying funds controlled by the Fund of Funds’ expenses are included in the Fund of Fund expense.
Who needs to invest?
By investing in such funds, investors who want to make long-term investments can profit from the fund of funds advantages.
By investing in a wide portfolio, the fund of funds in India seeks to reduce overall risk while maximizing returns.
People who have less financial resources and little demand for liquidity and who can spare the money for a longer length of time can choose to take advantage of a pool of funds. The investor also has access to high-value funds because these funds invest in many kinds of mutual funds.
Such funds are also accessible to novice investors with little experience who are looking for a diversified, long-term investment choice.
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