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What are fund of funds, fees and benefits

What is the procedure to invest in FoF? Do we have any additional fees in it? If yes how much it would be? Who can choose FoF?

Oct 9, 2015 by Nirmala, Chennai  |   Mutual Fund

1. A fund of funds is a mutual fund which instead of directly investing in equity and debt market securities invest in other mutual fund schemes, based on its investment objective and strategy. Asset allocation funds, International Funds, Gold Funds etc are typical examples of fund of funds. The procedure of investing in Fund of Funds is like any other mutual fund schemes. You can get in touch with a financial advisor or a mutual fund company to invest in fund of funds. You can also invest online.

2. One of the major drawbacks of fund of funds is the fees. In a fund of funds, the investor apart from paying for the expenses of the underlying mutual funds, also have to pay for the expense of fund of funds. The additional fees can be as high as 0.75%.

3. Here are some examples of investors who may find investing in fund of funds beneficial

  1. Investors who may have the need of actively rebalancing their portfolio from the time to time based on market dynamics and their investment objectives. Instead of managing a portfolio of different mutual fund schemes, they can invest in a fund of funds that meet their investment objectives.

  2. Investors who want to invest in international equity markets like the US, Europe, etc.

  3. Investors who want to invest in commodities like Gold without a demat account. Such investors can invest in gold funds, which is a fund of Gold ETFs.
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