Fund of Funds: Advantages of adding a diversified fund to your portfolio

Fund of funds Mutual Funds invest in other schemes of Mutual Fund, each specializing in their way of investing in a particular asset or a sector. A Fund of Funds Mutual Fund can have different funds of the same asset class such as Equity or can have funds investing in other asset classes such as debt and gold. They seek to diversify and balance the risk across different asset classes and optimize returns.

So the advantage of fund of Funds is that by investing in just one Fund of Funds Mutual fund Scheme you gain access to multiple funds. It may sound easy and you might wonder that you too can do it all by yourself. But when it comes to investing professionally, the fund manager takes a lot of factors into account which we as retail investors don’t. They ensure that there is no overlapping of underlying portfolios when investing in multiple mutual funds. They check if the respective schemes are classified as Large-cap and non- large cap. So in a nutshell, a lot of research and analysis is done with the respective fund houses before investing.

Another advantage a Fund of Funds vs a mutual fund can offer is, it comes with indexation benefits. Fund of Funds Mutual Funds are treated as debt funds and are subjected to indexation.

Indexation is a tool that applies to long-term investments. It helps an investor to adjust inflation while gauging the returns of the invested amount.

As inflation is gradually raising, what’s worth Rs. 1000 could be worth Rs.1100 sooner in near future. Thus, inflation is reducing the purchasing power of our money. The same amount of money will be enabling the investor to buy lesser and lesser goods. 

In the case of Fund of Funds Mutual Fund, we arrive at capital gains after indexing the purchase price of the investment. When subjected to indexation, it lowers the long-term capital gains tax which brings down your taxable income. Indexation is also a reason why Fund of funds is looked upon as a preferred investment option.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.