Should Investors Consider Fund of Funds in their Portfolio?

A Fund of Fund means a mutual fund scheme that invests in other mutual fund schemes. The fund manager invests in other mutual funds instead of directly investing in equities or bonds. The portfolio is catered for investors with different risk profiles and financial goals. The Fund of Funds offers such benefits that the investors gain from the diversification as a result of investing in various fund categories.

 The most sought-after Fund of Funds in India are:

• Multi Asset allocation fund of funds are mutual funds that invest in and even other asset classes such as gold, equity, debt, and other commodities.
• Gold Fund of Funds are funds that have underlying investments in Gold ETFs
• International funds are investments in mutual funds that comprise bonds and shares of global companies.

 Investing in a fund of funds is a smart choice if one looks into a few aspects.

Advantages

• An investor’s investment is diversified across several funds from various sectors..
• This investment strategy of the fund of funds in India can helps one to get exposure in some of the top-performing mutual funds even with a limited investment budget.
• In case of Fund of Funds, taxation levied is payable by an investor, only when the fund is redeemed. However, both short-term and long-term capital gains are subject to tax deductions in India, depending upon the annual income of the investor and the time of investment.
• There is no taxation on fund of funds scheme if Fund Manager rebalances the scheme portfolio.

 Disadvantages

• The basic meaning of Fund of Funds is that the mutual fund invests in many funds that further invest in several securities. It is quite possible that the Fund of Funds, will own the same stocks and securities through different funds. This reduces the potential for diversification. 
• The Fund of Fund expense includes expenses of the underlying funds owned by the Fund of Funds.

Who should Invest?

• Investors who wish to invest long term may avail of the fund of funds benefits by investing in such funds.
• The main aim of the fund of funds in India isto augment returns by investing in a diverse portfolio thus trying to minimise the overall risk.
• Individuals with limited financial resources and low liquidity needs which they can spare for a more extended period of time can choose avail of the benefits of a fund of funds. Since such funds invest in different types of mutual funds, the investor also gains access to high-value funds.
• Also new investors with limited knowledge looking for a long-term and diversified investment option can invest in such funds.

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.