Fund of Funds (FoF)
Invest in multiple mutual funds, through a single Mutual Fund, to diversify your portfolio.
- Average returns - Dynamic
- Number of funds - (Static)
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What is a
Fund Of Funds?
A Fund Of Funds (FoFs) is like a mutual fund that invests in other mutual funds. It helps investors diversify by spreading their money across various funds for better risk management.
Advantages of Fund Of Funds
Easy diversification
FoFs spread your money across different Mutual Fund rather than investing directly in stocks, bonds, gold, etc. for diversifying your portfolio.
All-in-one solution
Instead of managing many funds, choose FoFs and invest in multiple mutual funds. Save time and effort without compromising on growth.
International exposure
With a Fund of Funds, you can invest in international markets as many funds invest in foreign mutual funds.
Types of debt funds
Funds Based On Duration
Large-cap Funds
Invest in the top 100 stocks
Midcap Funds
Portfolio of fast-growing companies
Small-cap Funds
Invest in companies with the highest growth potential
Multicap Funds
Multicap Funds
Large and Midcap Funds
Portfolio comprising large and mid-cap stocks
Medium Duration Fund
Maturity of bonds in between 3-4 years
Tax-Saving Funds
Equity Linked Saving Scheme (ELSS)
Tax-saving scheme under Section 80C
Sectoral Funds
Invest in different sectors
Thematic Funds
Invest in various stocks across industries tied by a common theme
Funds Based On Portfolio Allocation
Value funds
Follow the strategy of value investing
Dividend Yield Funds
Invest in stocks that consistently yield dividends
Focused Funds
A portfolio of select stocks
Funds Based On Duration
Overnight Fund
Securities mature in a day
Liquid Fund
Maximum maturity of securities is 91 days
Ultra Short Duration Fund
Bonds matures between 3 and 6 months
Money-Market Fund
Investment in money market securities with an investment tenure up to 1 year
Short Duration Fund
Macaulay duration of the fund ranges from 1-3 years
Medium Duration Fund
Maturity of bonds in between 3-4 years
Medium to Long Duration Fund
Maturity of bonds ranges from 4-7 years
Dynamic Bond Fund
Portfolio invests in securities across durations
Funds Based On Portfolio Allocation
Corporate Bond Fund
Portfolio invests primarily in corporate bonds
Credit Risk Fund
Investment in securities with the second highest credit rating
Banking and PSU Fund
Debt instruments issued by banks and PSUs
Gilt Fund
Investment in government securities
Gilt Fund with 10 year Constant Duration
Investment in government securities with Macaulay duration (weighted average time that a bond needs to be held for so that the total present value received is equal to the current market price) of 10 years
Floater Fund
Investment in floating rate instruments (instruments with interest rate that fluctuates with respect to a benchmark rate)
Equity-Oriented Fund
Aggressive Hybrid Fund
Maximum equity investment between 65% and 80%
Maximum equity
Investment between 65% and 80%
Arbitrage Fund
Invests in arbitrage opportunities
Equity Savings Fund
Investment in equity, debt and arbitrage
Dynamic Allocation Fund
Balanced Hybrid Fund
40% to 60% debt exposure
Multi-Asset Allocation Fund
Allocation in three different asset classes
Children's Fund
Lock-in of 5 years or till the child becomes an adult
Retirement Fund
Lock-in period of 5 years or till you retire
Understanding Fund of Funds
What are Fund Of Funds?
Fund Of Funds are mutual fund schemes which invest in other mutual fund schemes to give you better diversification and exposure to different types of asset classes. There are different types of Fund Of Funds which you can choose from based on your investment strategy.
What are the features of Fund Of Funds?
- Invests in one or more mutual funds.
- FoFs can invest in different asset classes by choosing different funds.
- International and gold investments can be done through FoFs.
- Different types of schemes for different investor preference.
- Easy liquidity without any lock-in period
What are the different types of Fund Of Funds?
- Multi-asset or asset allocator FoFs
Invest across different asset classes.
- International FoFs
Invest in international mutual fund schemes.
- ETF-based FoFs
Invest in different types of ETFs.
- Gold FoFs
Invest in gold ETFs.
Who should invest in Fund of funds?
- New investors who lack the expertise of managing their portfolios.
- Investors with smaller capital but looking to invest in multiple mutual fund schemes.
- Investors who want portfolio diversification.
Who should buy a Savings Plan?
- Equity-oriented funds
If a FoF invests at least 90% of its portfolio in equity funds which, in turn, invest a minimum of 90% of their portfolio in equity, the FoF would be considered as an equity-oriented fund.
- Returns earned within 12 months of investment would attract short-term capital gains tax of 15%
- Returns earned after 12 months of investment would be tax-free up to Rs.1 lakh
- Returns exceeding Rs.1 lakh are taxed at 10%
- Debt-oriented funds
All other FoFs would be treated as debt funds for taxation purposes.
- Returns earned would be taxed at your income tax slab rates
- Dividend income is taxed at your income tax slab rates
What are some drawbacks of Fund Of Funds?
- You don’t control the choice of mutual funds into which the portfolio invests
- There is a possibility of the portfolio being duplicated
- The expense ratio is on the higher side
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