Fund of the fund is a mutual fund type that invests in the units of other funds instead of investing directly in bonds, stocks, or other crucial investment securities. Funds of funds are also a good way to invest in international mutual funds or ETFs (Exchange Traded Funds).
What is a fund for overseas investing?
Fund of fund mutual funds can invest in foreign funds registered internationally. Foreign funds hold international stocks, and you, as an Indian investor, get exposure to global stocks by investing in them.
What does ETF fund mean?
ETF funds are mutual fund schemes that invest in ETFs. Unlike an ordinary mutual fund, ETFs aren’t sold but are traded on stock exchanges. To invest in an ETF, you must have a demat account. However, investing in an ETF Fund of Fund is not necessary. You can invest in a Fund of Fund directly through the AMC website, your investment advisor, bank branch, etc.
Advantages of investing in fund of funds
1. Diversification
By investing in distinct mutual fund units, which support particular underlying securities and asset classes, the benefit of diversification is endowed, which allows you to reduce your investment risk.
2. Access
Fund of the fund can allow you to invest in ETFs or get exposure to international funds.
3. Small investment
You can focus on a fund-of-funds strategy that allows you to begin your investment with a small investible amount in distinct market cap segments. You can start with as low as Rs. 500 and invest in a mutual fund that gives you exposure to various asset classes.
3. Tax-friendly
When funds of funds get rebalanced to maintain a specific asset allocation between equity and debt, there is zero tax levied for the investor.
4. Professional fund management
Investing in a fund of funds permits you to try investing in a professionally managed fund before you can venture out and invest individually.
5. Credible portfolio managers
As portfolio managers’ background in the fund of funds is verified and checked, you can stay assured that the people managing and handling your invested funds are credible.
6. An opportunity if you have limited capital
Fund of funds can help begin your overseas investment journey with limited money. You can get exposure to international stocks and grow your money with a small amount. If not for fund of funds, owning global assets would be challenging for you as an investor if you are looking to invest individually.
If you are a new investor, the fund of fund category can be an excellent starting point as it contains a basket of mutual funds that fundamentally invest in specific securities and assets. Fund of funds provides access to specific asset classes like international companies and ETFs that otherwise would be tough to invest in via regular mutual funds. So, consider diversifying your investment portfolio by investing in such funds.
