How should investors look at Fund of Funds (FOF)

Funds of Funds (FOFs) usually invest in other mutual funds. They may be typically required to invest in mutual funds scheme managed by AMC, or invest across other funds or schemes managed by different fund houses.

A fund of funds (FOF)—is also termed a multi-manager investment tool as it invests in other funds. In other words, the portfolio basically consists of other mutual fund schemes.

How a Fund of Funds Works

The strategy behind FOFs aims to achieve appropriate asset allocation and diversification with different mutual fund categories like debt, equity, gold, etc., that form part of your portfolio.

Key Takeaways for an investor FOFs invest in other mutual fund schemes. Advantages of Investing in Fund of Funds for investors

There are three key benefits of investing in a fund of funds Mutual Fund –

1. Diversification

Fund of funds may has a portfolio of different asset class or sector, or fund. Thus it acts as a benefit for diversification and amplifies risk- adjusted returns that is optimized due to the portfolio.

1. Professionally trained managers

Portfolio managers are skilled and qualified individuals that assess and analyze all risk and return factors through detailed investment strategies. This gives investors the benefit of professional management of their investments.

1. Low resource requirements

It is important for every investor to analyze the particular FOF’s mutual funds schemes or any other category.

Few points to keep in mind as an investor

1. Stay invested for the long term: Make sure as investors you must lock-in your funds for at least 3 to 5 years to fetch desired returns. Also, ensure that you are able achieve your liquidity needs through debt mutual funds like liquid funds etc. Mostly FOF s in mutual funds follow a long term strategy, thus it is suggested to have a long term approach.

1. Risk-Reward Payoff: Always remember that Fund of Funds are subject to volatility due to market fluctuations.
2. Expense ratio

Evaluate the expense ratio of the Fund of Funds scheme.  

1. Tax

Capital Gain Tax levied on a fund of funds is payable by an investor during redemption of the corpus amount.

Thus, Fund of Funds is a convenient option for investors who do not have the time to select the mutual funds for their portfolio.

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.