Fund of Fund

A Fund of Fund (FoF) invests in other funds. Investment in these funds help investors spread their risks across various markets and assets class while benefiting from professional fund management.

A Fund of Fund is essentially a "fund made up of funds." It pools money from investors and invests it in a collection of other mutual funds, or exchange-traded funds (ETFs). By doing so, it provides a diversified investment portfolio managed by experts

Benefits of FoFs

1. Diversification: FoFs provide diversification by investing in multiple funds across various sectors, geographies, or asset classes

2. Accessibility: They allow small investors to access high-performing funds that may otherwise require large capital.

3. Expert Management: FoFs is managed by professionals. It reduce the burden on individual investors.

4. Risk Reduction: Spreading investments across different funds helps to minimize risks.

Example

Suppose an investor wants to invest Rs.1,00,000 but lacks the expertise to choose individual stocks or mutual funds. In this case, he/she may invest into FoF that further invests in the other mutual fund available in the market like Equity Funds, Debt Fund, Hybrid fund, Hedge Funds, etc

A Fund of Fund is a smart option for investors seeking diversified exposure with professional management. While they come with slightly higher costs due to layered management fees, their potential for balanced growth and reduced risk makes them an attractive choice for long-term wealth creation