Mutual Fund Investment: Fund of Funds (FoF) is an investment option for investors in addition to regular funds.
Mutual Fund Investment: The attraction of investors towards mutual funds is increasing. Now let’s assume that you have invested money in a mutual fund scheme and the fund manager instead of buying shares or debt securities of any company with that money invests that money in another mutual fund scheme. In this case, your money is invested in the Fund of Funds (FoF) scheme and this is an investment option for investors in addition to regular funds.
The fund manager of the fund of funds buys units of any other mutual fund scheme with your money. It can be of many types like Gold Fund of Funds, FOF Investing in International ETFs, Multi Manager FOF of Multi-Asset FOF. However, now the question arises whether it is right to invest money in Fund of Funds and in this. Under what circumstances should one invest? Here, Scripbox’s Chief Investment Officer, Anoop Bansal has given information about those circumstances, when money should be invested in FoF and when not.
Under these circumstances it is right to invest money in FoF.
- If an investor has a passive outlook on the investment portfolio, he/she can opt for Fund of Funds at the asset allocation or/and product level in his/her portfolio.
- FOF of ETFs based on a country or commodity may prove to be a better investment option than ETFs as the purchase price will be the NAV which will be closer to the benchmark value at the end of the trading day.
- If you want to invest in a high-net-worth product and less liquid product and where there is a high investment limit for investment, it is better to invest in Fund of Funds.
In such cases it is not better to invest in FoF
- Even if the FOF is of passive allocation according to the investor, the fund manager of the FOF can invest in all asset classes. If there are multiple FoFs in the portfolio, there can be very active risk in the asset allocation of the portfolio.
- Investing in Equity Fund of Funds is not the best as it attracts the same tax as tax on Debt Funds and then your returns may be lower whereas Equity would be taxed at 15 per cent in the short term and 10 per cent in the long term. Is.