What is Fund of Funds(FoF) in Mutual Fund in India

Looking to diversify your portfolio without spending hours of your precious time researching every stock and analysing every market trend? Fund of fund (FoF) mutual funds may be the perfect way to experience the best of both worlds: excellent investment opportunities and hands-off management. 

So, what is an FOF mutual fund? It is a specialised mutual fund that essentially invests in other mutual funds to provide you with combined benefits from various strategies and asset classes, all guided by expert fund managers who do the heavy lifting for you. 

In this article, we explore the FOF meaning, how it works, its types and its advantages and disadvantages to help you make informed investment decisions. 

What does Fund of Funds Mean? 

A Fund of Fund mutual fund is a unique type of mutual fund that directs your investment to several other mutual funds instead of investing directly in securities. This offers you more exposure to a variety of funds and asset classes through a single investment. 

FOF mutual funds are usually managed by a fund manager who analyses and selects the mutual funds the fund will invest in. 

Advantages of Fund of Funds 

Here are some reasons why investing in an FOF can be a good investment decision: 

1. Diversification: A higher level of diversification compared to individual funds is what draws investors to FOFs. Investing in an FOF automatically gives you access to a broader range of asset classes, sectors and investment strategies. This reduces the total risk attributed to your investment. 

2. Professional Management: Your Fund of Fund would be managed by experienced fund managers who track market movements closely to select funds to invest in. This saves you both time and effort. 

3. Convenience: When you invest in an FOF the effort on your part is minimal. This is a single investment that gives you access to many funds and is a convenient choice if you are new to investments.

4. Smaller Resource Requirement: If you have a limited investment corpus, a FOF can be a great choice. Many individual mutual funds have minimum investment requirements, which can add up if you want to invest in multiple funds. With FOFs, you can gain access to many funds with a smaller initial investment. 

Disadvantages of Fund of Funds

While FOFs offer several benefits, consider the following factors before investing: 

1. Higher Fees: FOFs generally have a higher expense ratio as you incur expenses at the FOF level and the individual fund level. This can eat into your returns. 

2. Potentially Lower Returns: FOFs may underperform in some situations when compared to traditional individual funds. This can be due to the higher fees or if your fund manager makes a less optimal choice. 

Wrapping Up 

Fund of Funds are a great option if you prefer a more relaxed investment management approach. However, before investing in an FoF it is important to consider factors like your investment goals and risk appetite and select a reliable platform for investing. 

Tata Capital Moneyfy is a comprehensive platform for all your financial needs. It provides you with tools and expert guidance to make the right investment decisions. With Tata Capital Moneyfy, you have all the resources you need to find and invest in the best FOF mutual funds in India or any other investment vehicle of your choice. 

To know more, visit the Tata Capital Moneyfy website or download the Tata Capital Moneyfy App today!